Up to first contractual payment or delivery leg
From first contractual payment or delivery leg up to four days after second contractual payment or delivery leg
From 5 business days post second contractual payment or delivery leg until extinction of the transaction
No capital charge
Treat as an exposure
Deduct value transferred plus current positive exposure from own funds
Table 2 Capital treatment for free deliveries
Repealed Subsidiary 2007/002
Financial Services (Investment and Fiduciary Services)
FINANCIAL SERVICES (CAPITAL ADEQUACY OF INVESTMENT
FIRMS) REGULATIONS 2007 in the case of cross-border transactions, one day or more has elapsed since it made that payment or delivery.
3. In applying a risk weight to free delivery exposures treated according to column 3 of Table 2, investment firms using the approach set out in regulations 34 to 39 of the FSCACI Regulations, may assign PDs to counter parties, for which they have no other non-trading book exposure, on the basis of the counter party’s external rating. Investment firms using own estimates of loss given defaults (‘LGDs’) may apply the LGD set out in paragraph 8 of Part 2 of Schedule 7 of the FSCACI Regulations to free delivery exposures treated according to column 3 of Table 2 provided that they apply it to all such exposures. Alternatively, investment firms using the approach set out in those regulations may apply the risk weights, as set out in regulations 28 to 33 of those Regulations provided that they apply them to all such exposures or may apply a 100 % risk weight to all such exposures.
If the amount of positive exposure resulting from free delivery transactions is not material, investment firms may apply a risk weight of 100 % to these exposures.
4. In cases of a system wide failure of a settlement or clearing system, the Authority may waive the capital requirements calculated as set out in paragraphs 1 and 2 until the situation is rectified. In this case, the failure of a