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Repealed by LN. 2013/198 as from 1.1.2014 - page 40 / 94

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1989-47

Financial Services (Investment and Fiduciary Services)

Repealed Subsidiary 2007/002

FINANCIAL SERVICES (CAPITAL ADEQUACY OF INVESTMENT FIRMS) REGULATIONS 2007 event payment is lower than the capital requirement under the method in the first sentence of this paragraph, this amount may be taken as the capital requirement for specific risk.

Where an n-th-to-default credit derivative is externally rated, the protection seller shall calculate the specific risk capital charge using the rating of the derivative and apply the respective securitisation risk weights as applicable.

B. TREATMENT OF THE PROTECTION BUYER

(1)

For

the

party

who

transfers

credit

risk

(the

protection

buyer),

the

positions are determined as the mirror principle of 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 and nth-to-default credit following treatment applies instead of the mirror principle.

derivatives,

the

First-to-default credit derivatives

(2)

Where

an investment

firm obtains credit

protection for a number of

reference entities underlying a credit derivative under the terms that the first default among the assets shall trigger payment and that this credit event shall

terminate

the

contract,

the

investment

firm may offset

specific

risk

for

the

reference

entity to

which the

lowest

specific risk percentage charge among

the 14.

underlying

reference

entities

applies

according

to

Table

1

of paragraph

Nth-to-default credit derivatives

(3)

Where

the

nth

default

among

the

exposures triggers payment

under

the credit protection, the protection buyer may only offset specific risk if protection has also been obtained for defaults 1 to n-1 or when n-1 defaults have already occurred. In such cases, the methodology set out above for first-to-default credit derivatives shall be followed appropriately modified for

nth-to-default products.”.

(2)

Table 1 of paragraph 14 of Schedule 1 is amended as follows−

(a)

in the first column of the second row, substituted by “paragraph 29” and “step 1 by “step 1, 2 or 3”;

“paragraph 28” is or 2” is substituted

© Government of Gibraltar (www.gibraltarlaws.gov.gi)

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