Financial Services (Investment and Fiduciary Services)
Repealed Subsidiary 2007/002
FINANCIAL SERVICES (CAPITAL ADEQUACY OF INVESTMENT FIRMS) REGULATIONS 2007 — where the reference obligation is one that if it gave rise to a direct exposure of the investment firm it would not be a qualifying item for the purposes of Schedule 1: 10 %.
However, in the case of a credit default swap, an institution the exposure of which arising from the swap represents a long position in the underlying shall be permitted to use a figure of 0 % for potential future credit exposure, unless the credit default swap is subject to closeout upon insolvency of the entity the exposure of which arising from the swap represents a short position in the underlying, even though the underlying has not defaulted, in which case the figure for potential future credit exposure of the institution shall be limited to the amount of premia which are not yet paid by the entity to the institution.
Where the credit derivative provides protection in relation to ‘nth to default’ amongst a number of underlying obligations, which of the percentage figures prescribed above is to be applied is determined by the obligation with the nth lowest credit quality determined by whether it is one that if incurred by the investment firm would be a qualifying item for the purposes of Schedule 1.
8. For the purposes of paragraph 6, in calculating risk-weighted exposure amounts investment firms shall not be permitted to use the Financial Collateral Simple Method, set out in paragraphs 24 to 29 of Part 3 of Schedule 8 of the FSCACI Regulations, for the recognition of the effects of financial collateral.
9. For the purposes of paragraph 6, in the case of repurchase transactions and securities or commodities lending or borrowing transactions booked in the trading book, all financial instruments and commodities which are eligible to be included in the trading book may be recognised as eligible collateral. For exposures due to OTC derivative instruments booked in the trading book, commodities that are eligible to be included in the trading book may also be recognized as eligible collateral. For the purposes of calculating volatility adjustments where such financial instruments or commodities which are not eligible under Schedule 8 of the FSCACI Regulations are lent, sold or provided, or borrowed, purchased or received by way of collateral or otherwise under such a transaction, and the investment firm is using the supervisory volatility adjustments approach under Part 3 of Schedule 8 to those Regulations, such instruments and commodities shall be treated in the same way as non-main index equities listed on a recognised exchange.
Where investment firms are using the own estimates of volatility adjustments approach under Part 3 of Schedule 8 of the FSCACI Regulations in respect of financial instruments or commodities which are not eligible under that Schedule, volatility adjustments shall be calculated for each individual item.