Related provisions for BIPRU 7.4.16

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BIPRU 7.2.27RRP
A firm must treat a swap with only one interest rate leg as a notional position in a zero-specific-risk security:(1) with a coupon equal to that on the interest rate leg;(2) with a maturity equal to the date that the interest rate will be reset; and(3) which is a long position if the firm is receiving interest payments and short if making interest payments.
BIPRU 7.2.32RRP
(1) Where included in the PRR calculation in BIPRU 7.2 (see the table in BIPRU 7.2.4R), options and warrants must be treated in accordance with this rule.(2) An option or warrant on a debt security, a basket of debt securities or a debt security index must be treated as a position in that debt security, basket or index.(3) An option on an interest rate must be treated as a position in a zero coupon zero-specific-risk security with a maturity equal to the sum of the time to expiry
BIPRU 7.2.34RRP
Other futures, forwards, options and swaps treated under BIPRU 7.2 must be treated as positions in zero-specific-risk securities, each of which:(1) has a zero coupon;(2) has a maturity equal to that of the relevant contract; and(3) is long or short according to the table in BIPRU 7.2.35R.
BIPRU 7.2.35RRP

Table: Interest rate risk on other futures, forwards, options and swaps

This table belongs to BIPRU 7.2.34R.

Instrument

Notional positions

foreign currencyforward or future

a long position denominated in the currency purchased

and

a short position denominated in the currency sold

Gold forward or future

a long position if the forward or future involves an actual (or notional) sale of gold

or

a short position if the forward or future involves an actual (or notional) purchase of gold

Equityforward or future, or option (unless the interest rate PRR is calculated under the basic interest rate PRR calculation in BIPRU 7.3)

A long position if the contract involves an actual (or notional) sale of the underlying equity

or

A short position if the contract involves an actual (or notional) purchase of the underlying equity
BIPRU 7.2.46AGRP
3BIPRU 7.2.43 R includes both actual and notional positions. However, notional positions in a zero-specific-risk security do not attract specific risk. For example:(1) interest-rate swaps, foreign-currency swaps, FRAs, interest-rate futures, foreign-currencyforwards, foreign-currencyfutures, and the cash leg of repurchase agreements and reverse repurchase agreements create notional positions which will not attract specific risk; while(2) futures, forwards and swaps which are based
BIPRU 7.3.19RRP
The equity leg of an equityswap must be treated as a position in the underlying equity, equity basket or equity index, which is:(1) long, if the firm has contracted to receive any increase and pay any decrease in the value of the underlying equities or equity index; and(2) short, if the firm has contracted to receive any decrease and pay any increase in the value of the underlying equities or equity index.
BIPRU 7.3.45RRP
This rule applies to a firm that does not include a forward, future, option or swap on an equity, basket of equities or equity index in the calculation of its interest rate PRR calculation under BIPRU 7.2 (Interest rate PRR). However it does not apply to cliquet as defined in BIPRU 7.6.18R (Table: Option PRR: methods for different types of option). A firm must calculate the interest rate PRR for a position being treated under this rule as follows:(1) multiply the market value
BIPRU 7.4.4RRP

Table: Instruments which result in notional positions

This table belongs to BIPRU 7.4.2R(3)

Instrument

See

Forwards, futures, CFDs, synthetic futures and options on a single commodity (unless the firm calculates a PRR on the option under BIPRU 7.6 (Option PRR))

BIPRU 7.4.8R

A commitment to buy or sell a single commodity at an average of spot prices prevailing over some future period

BIPRU 7.4.10R

Forwards, futures, CFDs, synthetic futures and options on a commodity index (unless the firm calculates an PRR on the option under BIPRU 7.6)

BIPRU 7.4.13R - BIPRU 7.4.14R

Commodityswaps

BIPRU 7.4.16R - BIPRU 7.4.17R

A warrant relating to a commodity must be treated as an option on a commodity.

BIPRU 7.4.17RRP

Table: Treatment of commodity swaps

This table belongs to BIPRU 7.4.16R

Receiving amounts which are unrelated to any commodity's price

Receiving the price of commodity 'b'

Paying amounts which are unrelated to any commodity's price

N/A

Long positions in commodity 'b'

Paying the price of commodity 'a'

Short positions in commodity 'a'

Short positions in commodity 'a' and long positions in commodity 'b'
BIPRU 7.4.18GRP
The table in BIPRU 7.4.17R shows that where the legs of the swap are in different commodities, a series of forward positions are created for each commodity (that is, a series of short positions in commodity 'a' and a series of long positions in commodity 'b').
BIPRU 7.11.4RRP
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 zero-specific-risk security with a maturity equivalent to the period until the next interest fixing and which is assigned a 0% risk weight under the standardised approach to credit risk. It also creates a long position in the specific risk of the reference obligation.
BIPRU 7.11.5RRP
A credit default swap does not create a position for general market risk. For the purposes of specific risk, a firm must record a synthetic long position in an obligation of the reference entity, unless the derivative is rated externally and meets the conditions for a qualifying debt security, in which case a long position in the derivative is recorded. If premium or interest payments are due under the product, these cash flows must be represented as notional positions in zero-specific-risk
BIPRU 7.11.14RRP
(1) A firm may take full allowance when the value of two legs always move in the opposite direction and broadly to the same extent.(2) This will be the case in the following situations:(a) the two legs consist of completely identical instruments; or(b) a long cash position is hedged by a total rate of return swap (or vice versa) and there is an exact match between the reference obligation and the underlying exposure (i.e., the cash position).(3) The maturity of the swap itself
IFPRU 6.2.8GRP
Other futures, forwards, and swaps where a treatment is not specified in article 328 of the EU CRR ((Interest rate futures and forwards) should be treated as positions in zero specific risk securities, each of which:(1) has a zero coupon;(2) has a maturity equal to that of the relevant contract; and(3) is long or short according to the table in IFPRU 6.2.9 G.
IFPRU 6.2.13GRP
For interest-rate risk, a firm should treat a swap (such as an equity swap) with only one interest rate leg as a notional position in a zero specific risk security:(1) with a coupon equal to that on the interest rate leg;(2) with a maturity equal to the date that the interest rate will be reset; and(3) which is a long position if the firm is receiving interest payments and short if making interest payments.
BIPRU 7.10.21GRP
The broad classes of position referred to in BIPRU 7.10.20G are as follows:(1) linear products, which comprise securities with linear pay-offs (e.g. bonds and equities) and derivative products which have linear pay-offs in the underlying risk factor (e.g. interest rate swaps, FRAs, total return swaps);(2) European, American and Bermudan put and call options (including caps, floors and swaptions) and investments with these features (see BIPRU 7.6.18R (Table: Option PRR: methods
BIPRU 7.6.13RRP

Table: Derived positions

This table belongs to BIPRU 7.6.9R

Underlying

Option (or warrant)

Derived position

Equity

Option (warrant) on a single equity or option on a future/forward on a single equity

A notional position in the actual equity underlying the contract valued at the current market price of the equity.

Option (warrant) on a basket of equities or option on a future/forward on a basket of equities

A notional position in the actual equities underlying the contract valued at the current market price of the equities.

Option (warrant) on an equity index or option on a future/forward on an equity index

A notional position in the index underlying the contract valued at the current market price of the index.

Interest rate

Option on an interest rate or an interest rate future/FRA

A zero coupon zero-specific-risk security in the currency concerned with a maturity equal to the sum of the time to expiry of the contract and the length of the period on which the settlement amount of the contract is calculated valued at the notional amount of the contract.

Option on an interest rate swap

A zero coupon zero-specific-risk security in the currency concerned with a maturity equal to the length of the swap valued at the notional principal amount.

Interest rate cap or floor

A zero coupon zero-specific-risk security in the currency concerned with a maturity equal to the remaining period of the cap or floor valued at the notional amount of the contract.

Debt securities

Option (warrant) on a debt security or option on a future/forward on a debt security

The underlying debt security with a maturity equal to the time to expiry of the option valued as the nominal amount underlying the contract at the current market price of the debt security.

Option (warrant) on a basket of debt securities or option on a future/forward on a basket of debt securities

A notional position in the actual debt securities underlying the contract valued at the current market price of the debt securities.

Option (warrant) on an index of debt securities or option on a future/forward on an index of debt securities

A notional position in the index underlying the contract valued at the current market price of the index.

Commodity

Option on a commodity or option on a future/forward on a commodity

An amount equal to the tonnage, barrels or kilos underlying the option with (in the case of a future/forward on a commodity) a maturity equal to the expiry date of the forward or Futures contract underlying the option. In the case of an option on a commodity the maturity of the position falls into Band 1 in the table in BIPRU 7.4.28R (Table: Maturity bands for the maturity ladder approach).

Option on a commodityswap

An amount equal to the tonnage, barrels or kilos underlying the option with a maturity equal to the length of the swap valued at the notional principal amount.

CIU

(These provisions about CIUs are subject to BIPRU 7.6.35R)

Option (warrant) on a single CIU or option on a future/forward on a single CIU

A notional position in the actual CIU underlying the contract valued at the current market price of the CIU.

Option (warrant) on a basket of CIUs or option on a future/forward on a basket of CIUs

A notional position in the actual CIUs underlying the contract valued at the current market price of the CIUs.

Gold

Option on gold or option on a future/forward on gold

An amount equal to the troy ounces underlying the option with (in the case of a future/forward on gold) a maturity equal to the expiry date of the forward or futures contract underlying the option.

Currency

Currency option

The amount of the underlying currency that the firm will receive if the option is exercised converted at the spot rate into the currency that the firm will sell if the option is exercised.
IFPRU 6.3.4GRP
A VaR model permission will generally set out the broad classes of position within each risk category in its scope. It may also specify how individual products within one of those broad classes may be brought into or taken out of scope of the VaR model permission. These broad classes of permission are as follows:(1) linear products, which comprise securities with linear pay-offs (such as bonds and equities) and derivative products which have linear pay-offs in the underlying risk
BIPRU 13.8.8RRP
A firm may attribute an exposure value of zero for CCR to a securities financing transaction or to any other exposures in respect of that transaction (but excluding an exposure arising from collateral held to mitigate losses in the event of the default of other participants in the central counterparty's arrangements) which is outstanding with a central counterparty and has not been rejected by the central counterparty.[Note: BCD Annex III Part 2 point 6 in respect of SFTs]