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Repealed by LN. 2013/198 as from 1.1.2014 - page 38 / 94





38 / 94


Financial Services (Investment and Fiduciary Services)

Repealed Subsidiary 2007/002


FIRMS) REGULATIONS 2007 allow the capital requirement for an OTC option cleared by a clearing house recognised by it to be equal to the margin required by the clearing house if it is fully satisfied that it provides an accurate measure of the risk associated with the option and that it is at least equal to the capital requirement for an OTC option that would result from a calculation made using the method set out in the remainder of this Schedule or applying the internal models method described in Schedule 5. In addition the Authority may allow the requirement on a bought exchange traded or OTC option to be the same as that for the instrument underlying it, subject to the constraint that the resulting requirement does not exceed the market value of the option. The requirement against a written OTC option shall be set in relation to the instrument underlying it.


6. Warrants relating to debt instruments and equities shall be treated in the same way as options under paragraph 5.

7. Swaps shall be treated for interest rate risk purposes on the same basis as on balance sheet instruments. An interest rate swap under which an investment firm receives floating rate interest and pays fixed rate interest shall be treated as equivalent to a long position in a floating rate instrument of maturity equivalent to the period until the next interest fixing and a short position in a fixed rate instrument with the same maturity as the swap itself.

8. When calculating the capital requirement for market risk of the party who assumes the credit risk (the “protection seller), unless specified differently, the notional amount of the credit derivative contract shall be used. Notwithstanding the first sentence, the institution may elect to replace the notional value by the notional value, minus any market value changes of the credit derivative since trade inception. For the purpose of calculating the specific risk charge, other than for total return swaps, the maturity of the credit derivative contract, rather than the maturity of the obligation, shall apply. Positions are determined as follows:

  • (i)

    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 government bond with a maturity equivalent to the period until the next interest fixing and which is assigned a 0 % risk weight under Schedule 6 of the FSCACI Regulations. It also creates a long position in the specific risk of the reference obligation.

  • (ii)

    A credit default swap shall not create a position for general market risk. For the purposes of specific risk, the

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