Related provisions for INSPRU 3.2.10
1 - 20 of 40 items.
When calculating the PRR of the protection seller, unless specified differently by other rules, the notional amount of the credit derivative contract must be used. For the purpose of calculating the specific riskPRR charge, other than for total return swaps, the maturity of the credit derivative contract is applicable instead of the maturity of the obligation.
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
A first-asset-to-default credit derivative creates a position for the notional amount in an obligation of each reference entity. If the size of the maximum credit event payment is lower than the PRR requirement under the method in the first sentence of this rule, the maximum payment amount may be taken as the PRR requirement for specific risk.
A second-asset-to-default credit derivative creates a position for the notional amount in an obligation of each reference entity less one (that with the lowest specific riskPRR requirement). If the size of the maximum credit event payment is lower than the PRR requirement under the method in the first sentence of this rule, this amount may be taken as the PRR requirement for specific risk.
(1) BIPRU 7.11.14R - BIPRU 7.11.17R relate to specific riskPRR for trading bookpositions hedged by credit derivatives for the purposes of the calculation of the securities PRR.(2) A firm may take an allowance for protection provided by credit derivatives for the purposes in (1) in accordance with the principles set out in the rules referred to in (1).(3) BIPRU 7.11.13 R - BIPRU 7.11.17 R are subject to the requirements of the credit default swap PRR methods.
An 80% offset may be applied when the value of two legs always move in the opposite direction and where there is an exact match in terms of the reference obligation, the maturity of both the reference obligation and the credit derivative, and the currency of the underlying exposure. In addition, key features of the credit derivative contract must not cause the price movement of the credit derivative materially to deviate from the price movements of the cash position. To the extent
The specific risk portion of the interest rate PRR for positions falling into BIPRU 7.11.19 R (1) and BIPRU 7.11.19 R (2) must be calculated in accordance with the credit default swap PRR methods rather than in accordance with BIPRU 7.2 (Interest rate PRR) and the other provisions of BIPRU 7.11. However a firm may apply BIPRU 7.11.13 R- BIPRU 7.11.17 R before applying the credit default swap PRR methods. If it does so the firm must apply the credit default swap PRR methods to
If a firm recognises profits on a non-accrual basis it should consider whether the capital requirements for its credit derivatives business adequately cover the risk that any recognised profit may not be achieved due to a credit event occurring. This includes positions for which the firm may have a perfect hedge in place.
For the purpose of GENPRU 2 Annex 7 (Admissible assets in insurance), and also in relation to permitted links,1 a derivative or quasi-derivative is approved if:(1) it is held for the purpose of efficient portfolio management (INSPRU 3.2.6 R to INSPRU 3.2.7 R) or reduction of investment risk (INSPRU 3.2.8 R to INSPRU 3.2.13 G);(2) it is covered (INSPRU 3.2.14 R to INSPRU 3.2.33 G); and(3) it is effected or issued:(a) on or under the rules of a regulated market; or(b) off-market
A derivative or quasi-derivative is held for the purpose of reducing investment risk if the derivative or quasi-derivative (either alone or together with other fully covered transactions) reduces any aspect of investment risk without significantly increasing any other aspect of that risk.
In assessing whether investment risk is reduced, the impact of a transaction on both the assets and liabilities should be considered. In particular, where the amount of liabilities depends upon the fluctuations in an index or other factor, investment risk is reduced where assets whose value fluctuates in the same way match those liabilities. In appropriate circumstances this may include:(1) a derivative or quasi-derivative that is linked to the same index as the liabilities from
(1) When a financial derivative instrument transaction with a linear risk profile stipulates the exchange of a financial instrument for a payment, the payment Part is referred to as the payment leg.(2) Transactions that stipulate the exchange of payment against payment consist of two payment legs.(3) The payment legs consist of the contractually agreed gross payments, including the notional amount of the transaction.(4) A firm may disregard the interest rate risk from payment
This table belongs to BIPRU 13.5.5 R.Transaction or instrumentCalculation of size of risk positionTransaction with linear risk profile except for debt instruments.The effective notional value (market price multiplied by quantity) of the underlying financial instruments (including commodities) converted to the firm's domestic currency.Debt instruments and payment legs.The effective notional value of the outstanding gross payments (including the notional amount) converted to the
For the determination of risk positions, a firm must treat collateral received from a counterparty like a claim on the counterparty under a derivative contract (long position) that is due today, while collateral posted must be treated as an obligation to the counterparty (short position) that is due today.[Note: BCD Annex III Part 5 point 10]
This table belongs to BIPRU 13.5.21 R.Hedging set categoriesCCR Multiplier (CCRM)(1)Interest Rates0.2%(2)Interest Rates for risk positions from a reference debt instrument that underlies a credit default swap and to which a capital charge of 1.60%, or less, applies under BIPRU 7.2.44 R1.0.3%(3)Interest Rates for risk positions from a debt instrument or reference debt instrument to which a capital charge of more than 1.60% applies under BIPRU 7.2.44 R.0.6%(4)Exchange Rates2.5%(5)Electric
(1) A firm must calculate the specific risk portion of the interest rate PRR for each debt security by multiplying the market value of the individual net position (ignoring the sign) by the appropriate PRA from the table in BIPRU 7.2.44R or as specified by BIPRU 7.2.45R - BIPRU 7.2.47R.(2) Notional positions in zero-specific-risk securities do not attract specific risk.
A firm must be able to satisfy the FSA that it has systems in place to manage potential concentration of risk arising from the firm's use of guarantees and credit derivatives. The firm must be able to demonstrate how its strategy in respect of its use of credit derivatives and guarantees interacts with its management of its overall risk profile.[Note: BCD Annex VIII Part 2 point 15]
(1) A transaction in a derivative must:(a) be in an approved derivative; or(b) be one which complies with COLL 5.2.23 R (OTC transactions in derivatives).(2) The underlying of a transaction in a derivative must consist of any one or more of the following to which the scheme is dedicated:(a) transferable securities permitted under COLL 5.2.8 R (3)(a) to (c) and COLL 5.2.8 R (3)(e)7;(b) approved money-market instruments7 permitted underCOLL 5.2.8 R (3)(a) to COLL 5.2.8 R (3)(d)7;77(c)
(1) Subject to any permission of the type described in BIPRU 9.12.28 G, the risk weight to be applied to the exposure amount must be:12.5 (S[L+T] - S[L]) / T(2) The remaining provisions of this paragraph define the terms used in the formulae in (1) and (3).(3) 2(4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) In these expressions, Beta [x; a, b]refers to the cumulative beta distribution with parameters a and b evaluated at x.(16) T (the thickness of the tranche in which the
(1) An authorised fund manager must, as frequently as necessary to ensure compliance with COLL 8.4.7 R (2) and COLL 8.4.7 R (4), re-calculate the amount of cover required in respect of derivatives and forwards positions in existence under this chapter.(2) Derivatives and forwards positions may be retained in the scheme property only so long as they remain covered globally under COLL 8.4.7 R.(3) An authorised fund manager must use a risk management process enabling it to monitor