Financial Services (Investment and Fiduciary Services)
Repealed Subsidiary 2007/002
FINANCIAL SERVICES (CAPITAL ADEQUACY OF INVESTMENT FIRMS) REGULATIONS 2007
3.1. The Authority may allow investment firms to provide lower capital requirements against positions in closely correlated currencies than those which would result from applying paragraphs 1 and 2 to them. The Authority may deem a pair of currencies to be closely correlated only if the likelihood of a loss — calculated on the basis of daily exchange rate data for the preceding three or five years — occurring on equal and opposite positions in such currencies over the following 10 working days, which is 4 % or less of the value of the matched position in question (valued in terms of the reporting currency) has a probability of at least 99 %, when an observation period of three years is used, or 95 %, when an observation period of five years is used. The own-funds requirement on the matched position in two closely correlated currencies shall be 4 % multiplied by the value of the matched position. The capital requirement on unmatched positions in closely correlated currencies, and all positions in other currencies, shall be 8 %, multiplied by the higher of the sum of the net short or the net long positions in those currencies after the removal of matched positions in closely correlated currencies.
3.2. The Authority may allow investment firms to remove positions in any currency which is subject to a legally binding intergovernmental agreement to limit its variation relative to other currencies covered by the same agreement from whichever of the methods described in paragraphs 1, 2 and 3.1 that they apply. Investment firms shall calculate their matched positions in such currencies and subject them to a capital requirement no lower than half of the maximum permissible variation laid down in the intergovernmental agreement in question in respect of the currencies concerned. Unmatched positions in those currencies shall be treated in the same way as other currencies.
Notwithstanding the first paragraph, the Authority may allow the capital requirement on the matched positions in currencies of EEA States participating in the second stage of the economic and monetary union to be
%, multiplied by the value of such matched positions.
Net positions in composite currencies may be broken down into the
component currencies according to the quotas in force.