Related provisions for BIPRU 7.6.1

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BIPRU 7.6.2GRP
Firms are reminded that the table in BIPRU 7.2.4R (Instruments which result in notional positions for the purposes of the interest rate PRR) and the table in BIPRU 7.3.3R (Instruments which result in notional positions for the purposes of the equity PRR) also require an interest rate PRR to be calculated for options on equities, baskets of equities or equities indices. The interaction between BIPRU 7.6 and the rest of Chapter 7 is illustrated in BIPRU 7.6.33G.
BIPRU 7.6.7RRP
(1) The appropriate position risk adjustment for a position is that listed in the table in BIPRU 7.6.8R against the relevant underlying position.(2) If the firm uses the commodity extended maturity ladder approach or the commodity maturity ladder approach for a particular commodity under BIPRU 7.4 (Commodity PRR) the appropriate position risk adjustment for an option on that commodity is the outright rate applicable to the underlying position (see BIPRU 7.4.26R (Calculating the
BIPRU 7.6.14RRP
A firm may treat (for the purpose of calculating an option PRR under BIPRU 7.6) an option strategy listed in the table in BIPRU 7.6.15R as the single position in a notional option specified against that strategy in the table in BIPRU 7.6.15R, if:(1) each element of the strategy is transacted with the same counterparty;(2) the strategy is documented as a single structure;(3) the underlying for each part of the composite position (including any actual holding of the underlying)
BIPRU 7.6.16RRP
A firm must calculate the option PRR for each individual derived optionposition using the method specified in the table in BIPRU 7.6.18R, or, if more than one method is permitted, using one of those methods.
BIPRU 7.6.18RRP
Table: Option PRR: methods for different types of optionThis table belongs to BIPRU 7.6.16ROptionDescriptionMethodAmerican optionAn option that may be exercised at any time over an extended period up to its expiry date.Option standard method or option hedging method if appropriateEuropean optionAn option that can only be exercised at expiry.Bermudan optionA cross between an American option and European option. The Bermudan option can only be exercised at specific dates during
BIPRU 7.6.20RRP
Under the option standard method, the PRR for a purchased option or warrant is the lesser of:(1) the market value of the derived position (see BIPRU 7.6.9R) multiplied by the appropriate position risk adjustment (see BIPRU 7.6.8R); and(2) the market value of the option or warrant.
BIPRU 7.6.22RRP
Under the option standard method, the PRR for underwriting or sub-underwriting an issue of warrants is the net underwriting position (or reduced net underwriting position) multiplied by the current market price of the underlying securities multiplied by the appropriate position risk adjustment, but the result can be limited to the value of the net underwriting position (or reduced net underwriting position) calculated using the issue price of the warrant.
BIPRU 7.6.24RRP
Under the option hedging method a firm must calculate the option PRR for individual positions as follows:(1) for an option or warrant on an equity, basket of equities or equity index and its equity hedge(s), the firm must, to the extent specified or permitted in the table in BIPRU 7.6.26R, use the calculation in the table in BIPRU 7.6.27R;(2) for an option or warrant on a debt security, basket of debt securities or debt security index and its debt security hedge(s), the firm must,
BIPRU 7.6.26RRP
Table: Appropriate treatment for equities, debt securities or currencies hedging optionsThis table belongs to BIPRU 7.6.24RHedgePRR calculation for the hedgeLimits (if hedging method is used)Naked positionAn equity (hedging an option or warrant)The equity must be treated in either BIPRU 7.3 (equity PRR) or the option hedging method (see the table in BIPRU 7.6.27R)The option hedging method must only be used up to the amount of the hedge that matches the notional amount underlying
BIPRU 7.6.27RRP
Table: The hedging method of calculating the PRR (equities, debt securities and gold)This table belongs to BIPRU 7.6.24R(1) - (3)PRROption or warrantpositionIn the money by more than the position risk adjustmentIn the money by less than the position risk adjustmentOut of the money or at the moneyLong in security or goldLong putZeroWpXShort callYYZShort in security or goldLong callZeroWcXShort putYYZWhere:Wp means{(position risk adjustment-100%) x The underlying position valued
BIPRU 7.6.28RRP
Table: The hedging method of calculating the PRR (currencies)This table belongs to BIPRU 7.6.24R(4)PRROptionpositionIn the money by more than 8%In the money by less than 8%Out of the money or at the moneyLong calls & long putsZeroWLXShort calls & short putsZeroYXWhere:WL means(1.08% x U)-The market value of the underlying positionU meansThe amount of the underlying currency that the firm will receive if the option is exercised, converted at the strike price into the currency that
BIPRU 7.6.36GRP
(1) This paragraph gives an example of how the appropriate position risk adjustment should be calculated for the purpose of deciding whether or not an option on a CIU is sufficiently in the money for the firm to have a choice whether or not to apply an option PRR. This example assumes that there is no leveraging (see BIPRU 7.7.11R (CIU modified look through method)).(2) Say that the CIU contains underlying equityposition and the firm is using one of the CIU look through methods.
BIPRU 7.2.3RRP
A firm's interest rate PRR calculation must:(1) include all trading bookpositions in debt securities, preference shares and convertibles, except:(a) positions in convertibles which have been included in the firm'sequity PRR calculation;(b) positions fully deducted as a material holding under the calculations under the capital resources table, in which case the firm may exclude them; or(c) positions hedging an option which is being treated under BIPRU 7.6.26R (Table: Appropriate
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 7.2.35RRP
Table: Interest rate risk on other futures, forwards, options and swapsThis table belongs to BIPRU 7.2.34R.InstrumentNotional positionsforeign currencyforward or futurea long position denominated in the currency purchasedanda short position denominated in the currency soldGold forward or futurea long position if the forward or future involves an actual (or notional) sale of goldora short position if the forward or future involves an actual (or notional) purchase of goldEquityforward
BIPRU 7.3.2RRP
A firm'sequity PRR calculation must:(1) include all trading bookpositions in equities, unless:(a) the position is fully deducted as a material holding under the calculations under the capital resources table, in which case the firm may exclude it; or(b) the position is hedging an option or warrant which is being treated under BIPRU 7.6.26R (Table: Appropriate treatment for equities, debt securities or currencies hedging options);(2) include notional positions arising from trading
BIPRU 7.3.21RRP
If included in BIPRU 7.3's PRR calculation (see the table in BIPRU 7.3.3R), options must be treated as follows:(1) an option on a single equity must be treated as a notional position in that equity;(2) an option on a basket of equities or equity index must be treated as a future on that basket or index; and(3) an option on an equityfuture must be treated as:(a) a long position in that future, for purchased call options and written put options; and(b) a short position in that future,
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 positionsThis table belongs to BIPRU 7.4.2R(3)InstrumentSeeForwards, 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 7.4.8RA commitment to buy or sell a single commodity at an average of spot prices prevailing over some future periodBIPRU 7.4.10RForwards, futures, CFDs, synthetic futures and options on a commodity index (unless the firm
BIPRU 7.4.8RRP
Where a forward, future, CFD, synthetic future or option (unless already included in the firm'soption PRR calculation) settles according to:(1) the difference between the price set on trade date and that prevailing at contract expiry, the notional position:(a) equals the total quantity underlying the contract; and(b) has a maturity equal to the expiry date of the contract; and(2) the difference between the price set on trade date and the average of prices prevailing over a certain
BIPRU 7.5.5RRP
Table: instruments which result in notional foreign currency positionsThis table belongs to BIPRU 7.5.3R(6).InstrumentsSeeForeign currencyfutures, forwards, synthetic futures and CFDsBIPRU 7.5.11RForeign currencyswapsBIPRU 7.5.13RForeign currency options or warrants (unless the firm calculates a PRR on the option or warrant under BIPRU 7.6 (Option PRR)).BIPRU 7.5.15RGold futures, forwards, synthetic futures and CFDsBIPRU 7.5.16RGold options (unless the firm calculates a PRR on
BIPRU 7.1.12RRP
A firm may calculate the PRR for a position falling into BIPRU 7.1.9R by applying by analogy the rules relating to the calculation of the interest rate PRR, the equity PRR, the commodity PRR, the foreign currency PRR2, the option PRR or the collective investment undertaking PRR if doing so is appropriate and if the position and PRR item are sufficiently similar to those that are covered by those rules.
BIPRU 7.7.2RRP
(1) A firm'sPRR calculation must include all trading bookpositions in CIUs.(2) A firm'sCIU PRR calculation must include all trading bookpositions in CIUs unless they are treated under one of the CIU look through methods and included in the PRR calculations for the relevant underlying investments or subject to an option PRR.(3) A firm'sPRR calculation for CIUs must include notional positions arising from trading bookpositions in options or warrants on collective investmentunde