Related provisions for BIPRU 13.1.3

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BIPRU 14.2.2RRP
A firm must hold capital calculated in accordance with BIPRU 14.2.13 Ragainst the CCR arising from exposures arising in the trading book due to the following:(1) free deliveries (where BIPRU 14.4 requires it to be treated as an exposure);(2) financial derivative instruments and credit derivatives;(3) repurchase agreements, reverse repurchase agreements, securities or commodities lending or borrowing transaction based on securities or commodities included in the trading book;(4)
BIPRU 14.2.10RRP
Where a credit derivative included in the trading book forms part of an internal hedge and the credit protection is recognised under the BCD3, there is deemed to be no counterparty risk arising from the position in the credit derivative. Alternatively, a firm may consistently include for the purposes of calculating capital requirements for counterparty credit risk all credit derivatives included in the trading book forming part of internal hedges or purchased as protection against
BIPRU 14.2.21RRP
For the purposes of counterparty credit risk, a firm may net exposures arising from items in the trading book against exposures arising from items in the non-trading book.
BIPRU 1.2.5GRP
Positions arising from client servicing include those arising out of contracts where a firm acts as principal (even in the context of activity described as 'broking' or 'customer business'). Such positions should be allocated to a firm'strading book if the intent is trading (see BIPRU 1.2.10 R). This applies even if the nature of the business means that generally the only risks incurred by the firm are counterparty risks (i.e. no market risk charges apply). If the nature of the
BIPRU 1.2.6RRP
Term trading-related repo-style transactions that a firm accounts for in its non-trading book may be included in the trading book for capital requirement purposes so long as all such repo-style transactions are included. For this purpose, trading-related repo-style transactions are defined as those that meet the requirements of BIPRU 1.2.4 R, BIPRU 1.2.10 R and BIPRU 1.2.12 R, and both legs are in the form of either cash or securities includable in the trading book. Regardless
BIPRU 1.2.6AGRP
2Capital requirements for term trading-related repo-style transactions are the same whether the risks arise in the trading book as counterparty credit risk or in the non-trading book as credit risk.
BIPRU 1.2.35GRP
All positions that are in a firm'strading book require capital to cover position risk and may require capital to cover counterparty credit risk. Counterparty credit risk in the trading book is dealt with by BIPRU 14.33
BIPRU 11.5.4RRP
A firm must disclose the following information regarding compliance with BIPRU 3, BIPRU 4, 5, BIPRU 7, 5 and the overall Pillar 2 rule:(1) a summary of the firm's approach to assessing the adequacy of its internal capital to support current and future activities;(2) for a firm calculating risk weighted exposure amounts in accordance with the standardised approach to credit risk, 8% of the risk weighted exposure amounts for each of the standardised credit risk exposure classes;(3)
BIPRU 9.1.9GRP
BIPRU 9 deals with:(1) requirements for investors,3originators and sponsors of securitisations of non-trading bookexposures;3(2) the calculation of risk weighted exposure amount for securitisation positions for the purposes of calculating either the credit risk capital component or the counterparty risk capital component; and3(3) the requirements that investors, originators and sponsors of securitisations in the trading book will have to meet (BIPRU 9.3.1AR, BIPRU 9.3.15R to BIPRU
BIPRU 13.3.15RRP
(1) 1In the cases in BIPRU 13.3.14R, and where the option in the second sentence of BIPRU 14.2.10 R is not applied, the exposure value for CCR for these creditderivatives is set to zero.(2) 1However, a firm may choose consistently to include for the purposes of calculating capital requirements for counterparty credit risk all credit derivatives not included in the trading book and purchased as protection against a non-trading exposure or against a CCRexposure where the credit
BIPRU 14.1.2GRP
(1) BIPRU 14.2 deals with the calculation of the capital requirement for CCR for trading book positions arising from financial derivative instruments, securities financing transactions and long settlement transactions. The approaches used to calculate exposure values and risk weighted exposure amounts for these positions are largely based on the approaches applicable to non-trading book positions (BIPRU 3, BIPRU 4, BIPRU 5 and BIPRU 13). However, there are some treatments that
IPRU-INV 5.12.1RRP

11

Receivables

In the case of receivables due to the firm in the form of fees, commission, interest, dividends and margin in exchange-traded futures or options contracts, which are directly related to items included in the trading book, the CRR is calculated as follows:

CRR = A x RF, where

A = the amount of the sum due; and

RF = the appropriate risk factor derived from IPRU-INV 5.14.1R.

Note 1

This requirement attaches only to balances arising from proprietary activity falling within the definition of the trading book.

Note 2

This requirement does not attach to items deducted in full as illiquid assets.

2

Delivery of cash against documents

Where a firm enters into a trading book transaction and the transaction is to be settled by delivery of cash against documents, the firm's CRR in respect of that transaction is calculated as follows:

CRR = (SP - MV) x RF, where

SP = agreed settlement price;

MV = current market value;

RF = the appropriate risk factor derived from IPRU-INV 5.13.1R.

The CRR should only be calculated where the difference between SP and MV would involve a loss if borne by the firm.

3

Free deliveries

Where a firm enters into a trading book transaction and the firm pays for the securities before it receives documents of title or delivers documents of title before receiving payment, the CRR in respect of that transaction is calculated as follows:

CRR =

V x RF,

where

V

(i)

the full amount due to the firm (i.e. the contract value) where the firm has delivered securities to a counterparty and has not received payment; or

(ii)

the market value of the securities, where the firm has made payment to a counterparty for securities and has not received documents of title; and

RF =

the appropriate risk factor derived from IPRU-INV 5.14.1R.

4

Settlement outstanding 30 days or more

In the case of trading book transactions entered into by a firm where the firm pays for the securities before it receives documents of title or delivers documents of title before receiving payment and settlement has not been effected within 30 days of falling due, CRR = V.

5

Repos/Stock Lending and Reverse Repos/Stock Borrowing

Where a firm enters into a transaction based on securities included in the trading book under the terms of a repurchase agreement or a securities lending agreement the firm's CRR in respect of that transaction is calculated as follows:

CRR = V x RF, where

RF = the appropriate risk factor derived from IPRU-INV 5.14.1R; and

for repos/stock lending:

V = the excess of the market value of the securities over the value of the collateral provided under the agreement, if the net figure is positive; or

for reverse repos/stock borrowing:

V = the excess of the amount paid or the collateral given for the securities received under the agreement, if the net figure is positive.

6

otc derivatives

In the case of a transaction entered into by a firm as principal in an otc derivative the CRR is calculated as follows:

CRR = A x RF, where

A = the appropriate credit equivalent amount derived from IPRU-INV 5.15.1R; and

RF = the appropriate risk factor derived from IPRU-INV 5.14.1R.

This calculation shall not apply to contracts for interest rate and foreign exchange which are traded on a recognised investment exchange or designated investment exchange where they are subject to a daily margin requirement and foreign exchange contracts with an original maturity of 14 calendar days or less.

A firm may net off contracts with the same counterparty in the same otc derivative contract for settlement on the same date in the same currency provided that the firm is legally entitled under the terms of the contracts with such a counterparty to net such contracts by novation.

IPRU-INV 5 App 1.1GRP

1The following words or terms throughout IPRU-INV 5 appearing in bold (other than headings and titles) are to have the meanings given to them below if not inconsistent with the subject or context. If a defined term is italicised the definition appearing in the main Handbook Glossary applies.

Term

Meaning

accounting reference date

means:

(a)

the date to which a firm's accounts are prepared in order to comply with the relevant Companies Act legislation. In the case of a firm not subject to Companies Act legislation, the equivalent date selected by the firm; and

(b)

in the case of an OPS firm which is not subject to the relevant Companies Act legislation, the date to which the accounts of the OPS in respect of which the firm acts are prepared.

annual expenditure

has the meaning given in IPRU-INV 5.5.1 (Determination).

category a body

means:

(a)

the government or central bank of a zone a country; or

(b)

EU or Euratom (the European Atomic Energy Community); or

(c)

the government or central bank of any other country, provided the receivable in question is denominated in that country's national currency.

category b body

means:

(a)

the European Investment Bank (EIB) or a multi-lateral development bank; or

(b)

the regional government or local authority of a zone a country; or

(c)

an investment firm or credit institution authorised in a zone a country; or

(d)

a recognised clearing house or exchange; or

(e)

an investment firm or credit institution authorised in any other country, which applies a financial supervision regime at least equivalent to the Capital Adequacy Directive.

counterparty

means any person with or for whom a firm carries on regulated business or an ancillary activity.

counterparty risk requirement

has the meaning given in IPRU-INV 5.11.1R (Counterparty risk requirement).

expenditure based requirement

means the requirement calculated in accordance with IPRU-INV 5.9.1R (Expenditure based requirement).

financial resources

has the meaning given in IPRU-INV 5.2.3R (Financial resources).

financial resources requirement

has the meaning given in IPRU-INV 5.4.1R (Determination of requirement).

financial resources rules

has the meaning given in IPRU-INV 5.2.

financial return

means quarterly financial return or monthly financial return as the case may be.

foreign exchange position

has the meaning given in IPRU-INV 5.14.1R (Foreign exchange requirement).

investment

means a designated investment in the main Glossary.

investment business

means designated investment business in the main Glossary.

investment firm

has the meaning given to investment firm in the main Glossary except that it excludes persons to which MiFID does not apply as a result of articles 2 or 3 of MiFID.

Note: An investment firm is not necessarily a firm for the purposes of the rules.

investment manager

means a person who, acting only on behalf of a customer, either:

(a)

manages an account or portfolio in the exercise of discretion; or

(b)

has accepted responsibility on a continuing basis for advising on the composition of the account or portfolio.

liquid capital

has the meaning given in IPRU-INV 5.3.1R (Calculation of own funds and liquid capital).

liquid capital requirement

has the meaning given in IPRU-INV 5.4.4R (Liquid capital requirement).

non-retail client

means a professional client or an eligible counterparty.

OPS or occupational pension scheme

means any scheme or arrangement which is comprised in one or more instruments or agreements and which has, or is capable of having, effect in relation to one or more descriptions or categories of employment so as to provide benefits, in the form of pensions or otherwise, payable on termination of service, or on death or retirement, to or respect of earners with qualifying service in an employment of any such description or category.

OPS firm

means:

(a)

a firm which:

(i)

carries on OPS activity but not with a view to profit; and

(ii)

is one or more of the following:

(A)

a trustee of the occupational pension scheme in question;

(B)

a company owned by the trustees of the occupational pension scheme in question;

(C)

a company which is:

(I)

an employer in relation to the occupational pension scheme in question in respect of its employees or former employees or their dependants; or

(II)

a company within the group which includes an employer within (I); or

(III)

an administering authority subject to the Local Government Superannuation Regulations 1986; or

(b)

a firm which:

(i)

has satisfied the requirements set out in (a) at any time during the past 12 months; but

(ii)

is no longer able to comply with those requirements because of a change in the control or ownership of the employer referred to in (a)(ii) during that period.

otc derivative

means interest rate and foreign exchange contracts covered by Annex III to the previous version of the Banking Consolidation Directive (i.e. Directive (2000/12/EC) and off balance sheet contracts based on equities which are not traded on a recognised or designated investment exchange or other exchange where they are subject to daily margin requirements, excluding any foreign exchange contract with an original maturity of 14 calendar days or less.

other assets requirement

has the meaning given in IPRU-INV 5.17.1R (Other assets requirement).

own funds

has the meaning given in IPRU-INV 5.3.1R and IPRU-INV 5.3.2R, as applicable.

own funds requirement

has the meaning given in IPRU-INV 5.4.3R and IPRU-INV 5.4.4R (Own funds requirement), as applicable.

permitted business

means regulated activity which a firm has permission to carry on.

position risk requirement

has the meaning given in IPRU-INV 5.11.1R (Position risk requirement).

prescribed subordinated loan agreement

means the subordinated loan agreement prescribed by the appropriate regulator for the purposes of IPRU-INV 5.6.4R.

qualifying capital instrument

means that part of a firm's capital which is a security of indeterminate duration, or other instrument, that fulfils the following conditions:

(a)

it may not be reimbursed on the bearer's initiative or without the prior agreement of the appropriate regulator;

(b)

the debt agreement must provide for the firm to have the option of deferring the payment of interest on the debt;

(c)

the lender's claims on the firm must be wholly subordinated to those of all non-subordinated creditors;

(d)

the documents governing the issue of the securities must provide for debt and unpaid interest to be such as to absorb losses, whilst leaving the firm in a position to continue trading; and

(e)

only fully paid-up amounts shall be taken into account.

qualifying capital item

means that part of a firm's capital which has the following characteristics:

(a)

it is freely available to the firm to cover normal banking or other risks where revenue or capital losses have not yet been identified;

(b)

its existence is disclosed in internal accounting records; and

(c)

its amount is determined by the management of the firm and verified by independent auditors, and is made known to, and is monitored by, the FCA.

2

qualifying property

has the meaning given in IPRU-INV 5.7.1R (Qualifying property and qualifying amount defined).

qualifying subordinated loan

has the meaning given in IPRU-INV 5.6 (Qualifying subordinated loans).

qualifying undertaking

has the meaning given in IPRU-INV 5.7.3R (Qualifying undertakings).

readily realisable investment

means a unit in a regulated collective investment scheme, a life policy or any marketable investment other than one which is traded on or under the rules of a recognised or designated investment exchange so irregularly or infrequently:

(a)

that it cannot be certain that a price for that investment will be quoted at all times; or

(b)

that it may be difficult to effect transactions at any price which may be quoted.

regulated business

means designated investment business in the main Glossary.

relevant foreign exchange items

means:

(a)

all assets less liabilities, including accrued interest, denominated in the currency (all investments at market or realisable value);

(b)

any currency future, at the nominal value of the contract;

(c)

any forward contract for the purchase or sale of the currency, at the contract value, including any future exchange of principal associated with currency swaps;

(d)

any foreign currency options at the net delta (or delta-based) equivalent of the total book of such options;

(e)

any non-currency option, at market value;

(f)

any irrevocable guarantee;

(g)

any other off-balance sheet commitment to purchase or sell an asset denominated in that currency.

reporting currency

means the currency in which the firm's books of account are maintained.

specified trustee business

1.

means any investment business carried on in the UK by a trustee firm, but excluding each of the following activities:

(a)

Dealing or arranging deals in investments

(i)

where the deal is transacted or arranged by a trustee firm with or through a PTP; or

(ii)

where the dealing or arranging is done in the course of, or is incidental to, an activity of management falling within paragraph (b) below; or

(iii)

where the trust is a unit trust scheme and the deal is or the arrangements are made with a view to either an issue or sale of units in such a scheme to, or a redemption or repurchase or conversion of such units or a dealing in investments for such a scheme carried out by with or through, the operator or on the instructions of the operator; or

(iv)

where the trustee firm, being a bare trustee (or, in Scotland, a nominee) holding investments for another person, is acting on that person's instructions; or

(v)

where any arrangements do not or would not bring about the transaction in question.

(b)

Managing investments

(i)

where the trustee firm has no general authority to effect transactions in investments at discretion; or

(ii)

if and to the extent that all day-to-day decisions in relation to the management of the investments or any discrete part of the investments are or are to be taken by a PTP; or

(iii)

if and to the extent that investment decisions in relation to the investments or any discrete part of the investments are or are to be taken substantially in accordance with the advice given by a PTP; or

(iv)

where the trustee firm is a personal representative or executor and is acting in that capacity; or

(v)

where the trust is a unit trust scheme and all day-to-day investment decisions in the carrying on of that activity are or are to be taken by the operator of the scheme.

(c)

Investment advice

(i)

where the relevant advice:

(A)

does not recommend the entry into any investment transaction or the exercise of any right conferred by any investment to acquire, dispose of, underwrite or convert such an investment; and

(ii)

if and to the extent that the relevant advice is in substance the advice of a PTP; or

(iii)

where the relevant advice is given by the trustee firm acting in the capacity of personal representative or executor.

(d)

Establishing, operating or winding up a collective investment scheme including acting as trustee of an authorised unit trust scheme but only to the extent that such activities do not otherwise constitute specified trustee business.

(e)

Any trustee activity undertaken as trustee of an issue of debentures or government or public securities:

(i)

where the issue is made by a company listed on a recognised investment exchange or on a designated investment exchange (or by a wholly-owned subsidiary of such a company); or

(ii)

where the issue is listed or traded either on a recognised investment exchange or on a designated investment exchange or on the Société de la Bourse de Luxembourg; or

(iii)

where the issue is made by a government, local authority or international organisation; or

(iv)

where the aggregate amounts issued (pursuant to the trust deed or any deed supplemental thereto and ignoring any amounts redeemed, repurchased or converted) exceed the sum of £10,000,000.

2.

For the purpose of this definition of "specified trustee business":

(a)

a transaction is entered into through a person if that person:

(i)

enters into it as agent; or

(ii)

arranges for it to be entered into as principal or agent by another person and the arrangements are such that they bring about the transaction in question;

(b)

investment transaction means a transaction to purchase, sell, subscribe for or underwrite a particular investment and "investment decision" means a decision relating to an investment transaction;

(c)

debentures means any securities falling within article 77 of the RAO;

(d)

government or public securities means any securities falling within article 78) of the RAO;

(e)

government, local authority or international organisation means:

(i)

the government of the United Kingdom, of Northern Ireland, or of any country or territory outside the United Kingdom;

(ii)

a local authority in the United Kingdom or Anywhere; or

(iii)

an international organisation the members of which include the United Kingdom2.

(f)

in determining the size of an issue of debentures or government or public securities made in a currency other than sterling, the amount of the issue shall be converted into sterling at the exchange rate prevailing in London on the date of issue.

total capital requirement

has the meaning given in IPRU-INV 5.4.5R (Total capital requirement).

trading book

in relation to a firm's business or exposures, means:

(a)

its proprietary positions in financial instruments:

(i)

which are held for resale and/or are taken on by the firm with the intention of benefiting in the short term from actual and/or expected differences between their buying and selling prices or from other price or interest-rate variations;

(ii)

arising from matched principal broking;

(iii)

taken in order to hedge other elements of the trading book;

(b)

exposures due to unsettled securities transactions, free deliveries, OTC derivative instruments, repurchase agreements and securities lending transactions based on securities included in (a)(i) to (iii) above, reverse repurchase agreements and securities borrowing transactions based on securities included in (a)(i) to (iii) above; and

(c)

fees, commission, interest and dividends, and margin on exchange-traded derivatives which are directly related to the items included in (a) and (b) above.

trustee activity

means, in relation to a firm, any activity undertaken in the course of or incidental to the exercise of any of its powers, or the performance of any of its duties, when

unit trust manager

means the manager of a unit trust scheme.

zone b country

means a country which is not a Zone A country in the Glossary.