Skip to Content
Whole SectionText only Print Print Manager Link

CA-3.3.1

An investment firm licensee'sG Counterparty Risk Requirement is the sum of its individual Counterparty Risk Requirements, calculated in accordance with Schedule 2 below:

Schedule 2 — Counterparty Risk Requirement
(a) Cash against document transactions
  Where an investment firm licenseeG has unsettled deals in any securities it must calculate the price difference to which it is exposed and then multiply this by the appropriate percentage below to calculate the CRR for each separate unsettled deal.
Calendar days after settlement Percentage
0–15 Nil
16–30 25%
31–45 50%
46–60 75%
Over 60 100%
(b) Free deliveries
  Where an investment firm licenseeG makes payment or delivers securities to a counterparty without receiving the certificate/good title or payment respectively, it must calculate a CRR for each free delivery by applying the appropriate percentage below:
Where free delivery has been made to: Business days since delivery
  0–3 4–15 >15
A manager, underwriter or member of a selling syndicate to whom payment for securities has been made 0% 0% 100%
An investment firm licenseeG to whom securities have been delivered or payment has been made with the expectation that market practice will result in a settlement date longer than three days from delivery date. 15% 15% 100%
Any other counterparty 0% 100% 100%
(c) Options purchased for a counterparty
  Where an investment firm licenseeG has purchased an option on behalf of a counterparty on terms which do not impose on the purchaser any actual or contingent margin requirement or liability to make any payment other than the initial purchase price of the option, and the counterparty has not paid the price by three days after trade date, the CRR is the amount by which the purchase price exceeds the current realisable value of the option.

Where an investment firm licenseeG has purchased a traditional option for its own account or on behalf of a counterparty that has not paid the investment firm licenseeG , then, if the investment firm licenseeG has paid the option premium to the writer, it must calculate a CRR equal to the option premium.
(d) Amounts owed in respect of exchange traded margined transactions
  (i) Where, as a result of a traded margined transaction, a counterparty of the investment firm licenseeG has an initial margin and/or variation margin requirement and has not met it fully with cash, acceptable collateral or a positive equity balance not used to meet variation margin, an investment firm licenseeG must calculate a CRR by multiplying the shortfall (or the relevant part of the shortfall) by the appropriate percentage contained in the schedule below:
Initial and variation margin percentage schedule
Business days since shortfall occurred

Where the shortfall is for the account of:
0–3 days 4 days and over
A. A market counterparty who has been granted a credit line under an adequate credit management policy available to cover the relevant category of margin and to the extent that it is sufficient to cover the shortfall. 5% 5%
B. A client who has been granted a credit line under an adequate credit management policy available to cover the relevant category of margin and to the extent that it is sufficient to cover the shortfall. 10% 10%
C. A market counterparty or client not within A or B above, or to the extent that he is not within A or B (the shortfall then being limited to the excess). 0% 100%
(ii) Local or traded option market makers. An investment firm licenseeG must calculate a 100% CRR for amounts of initial and variation margin not met with acceptable collateral or a positive equity balance and owed to it by a local (or by a traded option market maker) in respect of a traded margined transaction from the date of any shortfall, unless the investment firm licenseeG treats the local's (or market maker's) position as if it were its own (in which case the PRR rules under Section CA-3.2 will apply instead).
(iii) Sums owed on closed out exchange traded margined transactions. When, as a result of a traded margined transaction which has been closed out, a counterparty of the investment firm licenseeG owes any amounts to it arising out of losses on those transactions, and has not fully met that amount through the deposit of cash, acceptable collateral or a positive equity balance not otherwise used, the investment firm licenseeG must after three days from the date of crystallisation of the loss calculate a CRR equal to the unpaid amount.
(iv) Margin percentages. An investment firm licenseeG may, with the prior approval of the CBB, opt to calculate the CRR using a higher or the highest initial margin or variation margin percentage, in order to avoid undue complication.
(e) Concentrated risk to one counterparty
  If the total amount due to a licensee for free deliveries or other debts attracting a CRR from a single counterparty (or a group of closely related counterparties) exceeds 25% of the licensee's capital available, it must calculate CRR by applying the appropriate percentage below:
Amount of capital available Additional CRR
0–25% Nil
25.01–50% 15% (or the entire excess if less)
Over 50% 40% (or the entire excess if less)
(f) Repurchase and reverse repo transactions, including sale and buy back and securities lending
  An investment firm licenseeG shall notify the CBB if it has counterparty exposures in these investments.
(g) Swaps, forward contracts, over the counter options, contracts for differences and off-exchange futures
  An investment firm licenseeG shall notify the CBB if it has counterparty exposures in these investments.
(h) Loans to counterparties (including free delivery payments)
  An investment firm licenseeG must calculate a 100% CRR on the amount by which a loan to a counterparty is not properly secured, or offset against an amount owed by the investment firm licenseeG to the counterparty (provided there is an agreement in writing that the investment firm licenseeG deems to be legally enforceable and effective to secure such set-off).
(i) Other receivables and accrued income
  Other receivables and accrued income not covered elsewhere attract 100% CRR from the time that they become due.
Amended: January 2007
 Versions
(2 Versions)
 
Up to Jun 30 2007Jul 1 2007 onwards
Back to top