Financial Services (Investment and Fiduciary Services)
Repealed Subsidiary 2007/002
FINANCIAL SERVICES (CAPITAL ADEQUACY OF INVESTMENT FIRMS) REGULATIONS 2007 SCHEDULE 1
Regulations 9, 10, 14, 15, 22, 24 and 25
Calculating Capital Requirements for Position Risk
1. The excess of an investment firm’s long (short) positions over its short (long) positions in the same equity, debt and convertible issues and identical financial futures, options, warrants and covered warrants shall be its net position in each of those different instruments. In calculating the net position the Authority shall allow positions in derivative instruments to be treated, as laid down in paragraphs 4 to 7, as positions in the underlying (or notional) security or securities. Investment firms’ holdings of their own debt instruments shall be disregarded in calculating specific risk under paragraph 14.
No netting shall be allowed between a convertible and an offsetting
position in the instrument underlying it, approach under which the likelihood of converted is taken into account or have a loss which conversion might entail.
unless the Authority adopts an a particular convertible’s being capital requirement to cover any
3. All net positions, irrespective of their signs, shall be converted on a daily basis into sterling at the prevailing spot exchange rate before their aggregation.
Interest rate futures, forward rate agreements (“FRA”)
and forward combinations
of long treated futures
and short positions. Thus a long interest rate futures position shall be as a combination of a borrowing maturing on the delivery date of the contract and a holding of an asset with maturity date equal to that of
the instrument or question. Similarly
notional position a sold FRA shall
underlying the be treated as a
futures contract in long position with a
maturity date equal to the settlement date plus the contract short position with maturity equal to the settlement date. Both and the asset holding shall be included in the first category set
period, and a the borrowing out in Table 1
specific risk buy a debt
to calculate and FRAs.
in paragraph 14 for interest rate
in order futures
instrument shall be treated as a combination delivery date and a long (spot) position in
of a the
borrowing maturing on the debt instrument itself. The