Related provisions for INSPRU 3.2.18

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GENPRU 2.2.17 R requires a firm to calculate its capital resources for the purpose of GENPRU in accordance with the capital resources table, subject to the limits in GENPRU 2.2.32 R to GENPRU 2.2.41 R. The capital resources table and GENPRU 2.2.251 R require a firm to deduct from total capital resources the value of any asset included in an insurance fund which is not an admissible asset as listed in GENPRU 2 Annex 7. GENPRU 2 Annex 7 provides that a derivative, quasi-derivative
(1) 3GENPRU 2 Annex 7 R (3) requires firms to consider first whether an asset is a derivative or quasi-derivative transaction notwithstanding that it is also capable of falling within one or more other categories in GENPRU 2 Annex 7 R (1). If it is a derivative or quasi-derivative transaction it is only admissible if it satisfies the conditions for it to be approved under INSPRU 3.2.5 R. Firms should be able to justify whether or not their assets are derivatives or quasi-derivatives.(2)
A derivative or quasi-derivative is held for the purpose of efficient portfolio management if the firm reasonably believes the derivative or quasi-derivative (either alone or together with any other covered transactions) enables the firm to achieve its investment objectives by one of the following (or, in relation to permitted links, in a manner which includes but is not limited to)1:(1) generating additional capital or income in one of the ways described in INSPRU 3.2.7 R; or(2)
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
A firm is required to cover a derivative under INSPRU 3.2.14R whether it satisfies the other conditions for approval under INSPRU 3.2.5R or not. Under INSPRU 3.2.17R a firm may cover an obligation to pay a monetary amount by setting up a provision. If the derivative is not covered at any time by other means then a provision needs to be set up to complete the cover taking into account obligations to pay monetary amounts that would arise if, for example, an obligation to transfer
An offsetting transaction means:(1) an approved derivative, approved stock lending transaction or an approved quasi-derivative; or(2) a covered transaction with an approved counterparty for the purchase of assets.
(1) 7A UCITS scheme may invest in any other investment which shall be taken to be a transferable security for the purposes of investment by a UCITS scheme provided the investment:(a) fulfils the criteria for transferable securities set out in COLL 5.2.7A R; and(b) is backed by or linked to the performance of other assets, which may differ from those in which a UCITS scheme can invest.(2) Where an investment in (1) contains an embedded derivative component (see COLL 5.2.19R (3A)),
COLL 5.2.18RRP
COLL 5.2.19RRP
(1) A transaction in derivatives or a forward transaction must not be effected for a UCITS scheme unless:(a) the transaction is of a kind specified in COLL 5.2.20 R (Permitted transactions (derivatives and forwards)); and(b) the transaction is covered, as required by COLL 5.3.3 R (Cover for transactions in derivatives and forward transactions).(2) Where a UCITS scheme invests in derivatives, the exposure to the underlying assets must not exceed the limits in COLL 5.2.11 R (Spread:
COLL 5.2.20RRP
(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) 7An index based on derivatives on commodities or an index on property may be regarded as a financial index of the type referred to in COLL 5.2.20R (2)(f) provided it satisfies the criteria for financial indices set out in COLL 5.2.20A R.(2) If the composition of an index is not sufficiently diversified in order to avoid undue concentration, its underlying assets should be combined with the other assets of the UCITS scheme when assessing compliance with the requirements on
1COLL 5.2.22R (3) to (4) reflect the provisions of Article 7 of the Commission Recommendation on the use of financial derivative instruments.
(1) An authorised fund manager must take reasonable care to determine the following when entering into any transaction in derivatives or any commodity contract which may result in any asset becoming part of the scheme property:(a) if it is an asset in which the scheme property could be invested, that the transaction:(i) can be readily closed out; or(ii) would at the expected time of delivery relate to an asset which could be included in the scheme property under the rules in this
(1) The scheme property of a non-UCITS retail scheme may, subject to the rules in this section, comprise any assets or investments to which it is dedicated.(2) For an ICVC, the scheme property may also include movable or immovable property that is necessary for the direct pursuit of the ICVC's business of investing in those assets or investments.(3) The scheme property must be invested only in accordance with the relevant provisions in this section that are applicable to that
COLL 5.6.12RRP
(1) A transaction in derivatives or a forward transaction must not be effected for a non-UCITS retail scheme unless the transaction is:(a) of a kind specified in COLL 5.6.13 R2 (Permitted transactions (derivatives and forwards)); and2(b) covered, as required by COLL 5.3.3 R (Cover for transactions in derivatives and forward transactions).(2) Where a scheme invests in derivatives, the exposure to the underlying assets must not exceed the limits in COLL 5.6.7 R (Spread: general)
The operation of BIPRU 14.2.8 R can be illustrated by an example as follows: where the credit derivative is a first to default transaction, the appropriate percentage for the potential future credit exposure will be determined by the lowest credit quality of the underlying obligations in the basket. If there are non-qualifying items in the basket, the percentage applicable to the non-qualifying reference obligation should be used. For second and subsequent to default transactions,
To be eligible for the treatment set out in BIPRU 4.4.79 R, credit protection deriving from a guarantee or credit derivative must meet the following conditions:(1) the underlying obligation must be to:(a) a corporate exposure, excluding an exposure to an insurance undertaking (including an insurance undertaking that carries out reinsurance); or(b) an exposure to a regional government, local authority or public sector entity which is not treated as an exposure to a central government
(1) Units in CIUs may be recognised as eligible collateral if the following conditions are satisfied:(a) they have a daily public price quote; and(b) the CIU is limited to investing in instruments that are eligible for recognition under BIPRU 5.4.2 R to BIPRU 5.4.5 R.(2) The use (or potential use) by a CIU of derivative instruments to hedge permitted investments shall not prevent units in that CIU from being eligible.[Note:BCD Annex VIII Part 1 point 9]
(1) In addition to the collateral set out in BIPRU 5.4.2 R to BIPRU 5.4.7 R, where a firm uses the financial collateral comprehensive method, the following financial items may be recognised as eligible collateral:(a) equities or convertible bonds not included in a main index but traded on a recognised investment exchange or a designated investment exchange;(b) units in CIUs if the following conditions are met:(i) they have a daily public price quote; and(ii) the CIU is limited
A firm must cover its index-linked liabilities with:(1) either:(a) the assets which represent that index; or(b) assets of appropriate security and marketability which correspond, as closely as possible, to the assets which are comprised in, or which form, the index or other reference of value to which those liabilities are linked; or(2) a portfolio of assets whose value or yield is reasonably expected to correspond closely with the index-linked liability; or(3) an index-linked
(1) An ICVC or a depositary for the account of an authorised fund must not provide any guarantee or indemnity in respect of the obligation of any person.(2) None of the scheme property of an authorised fund may be used to discharge any obligation arising under a guarantee or indemnity with respect to the obligation of any person.(3) Paragraphs (1) and (2) do not apply to:(a) any indemnity or guarantee given for margin requirements where the derivatives or forward transactions
BIPRU 13.3.14RRP
When a firm purchases credit derivative protection against a non-trading book ,exposure or against a CCRexposure, it must compute its capital requirement for the hedged asset in accordance with:(1) BIPRU 5.7.16 R to BIPRU 5.7.25 R and BIPRU 4.10.49 R (4) to (6) (Unfunded credit protection: Valuation and calculation of risk-weighted exposure amounts and expected loss amounts);(2) BIPRU 4.4.79 R (Double default); or(3) BIPRU 4.10.40 R to BIPRU 4.10.48 R (Unfunded credit protection:
In particular, unless an exception applies, GENPRU 1.3.4 R should be applied for the purposes of GENPRU, BIPRU or INSPRU to determine how to account for:(1) netting of amounts due to or from the firm;(2) the securitisation of assets and liabilities (see also GENPRU 1.3.7 G);(3) leased tangible assets;(4) assets transferred or received under a sale and repurchase3 or stock lending transaction; and(5) assets transferred or received by way of initial or variation margin under a derivative