Exposures to Issuers
Authorised Firmmust calculate the value of an Exposureto the Issuerof a Securitywhich is held in the Authorised Firm's Non-Trading Bookas the sum of the excess, where positive, of the book value of all long positions over all short positions (the net long position), for each identical instrument issued by that Issuer.
For the purposes of PIB Rule A4.11.15, short positions in one
Securitymay be used to offset long positions in a non-identical Securityissued by the same Issuerif:(a) both Securitiesare denominated in the same currency; and(b) where both Securitiesare:(i) fixed rate or index-linked, and are within the same residual maturity time band; or(ii) floating rate.
Authorised Firmmust calculate the value of an Exposureto the Issuerof a Securityor a credit derivative used as a hedge that is held in the Authorised Firm's Trading Bookby calculating the excess of the current market value of all long positions over all short positions in all the Securitiesor credit derivatives issued by that Issuer, based on the seniority of those Securities or credit derivatives in the liquidation of the Issuer.
Authorised Firmmust not offset an Exposureto one Issueragainst an Exposureto another even where the Issuersare in a group of Closely Related Counterparties.
Authorised Firmmust include as a long position a commitment by it to buy:(a) a debt Securityor an equity at a future date; and(b) under a note issuance facility, at the request of the Issuer, a Securitythat is unsold on the issue date.
Authorised Firmmust include as a short position a commitment by it to sell a debt Securityor equity at a future date.
PIB A4.11.21 PIB A4.11.21
Where the equity leg of an equity swap is based on the change in value of an individual equity, it is treated as an
Exposureto the Issuerof the equity.
PIB A4.11.21 Guidance
An interest rate leg of an equity swap, or interest rate or currency swap does not generate an
Exposureto an Issuer.
An Authorised Firm must, when determining its
Exposureto an Issuerarising from an Option, use an Exposurevalue based on the level of change in the price that will result from the default of the underlying instrument.
PIB A4.11.23(1) An
Authorised Firmmust treat the value of:(a) a call Optionas equal to market value; and(b) a put Optionas equal to the strike price minus market value.(2) An Authorised Firmmust aggregate the resulting option Exposures to each underlying counterparty and if there is a negative net Exposureafter aggregation of all option Exposures, the option Exposure must be set to nil.
PIB A4.11.24 PIB A4.11.24
Authorised Firmmust, for the purposes of Concentration Risk, treat an Exposureto an Issuerarising from an index or basket of debt Securitiesor a non-broad-based equity index or basket, as a series of Exposuresto the Issuersof the underlying instruments or equities in accordance with the procedures in PIB chapter 4.
PIB A4.11.24 Guidance
Broadly based equity indices should not be broken down into their constituent stocks. A position related to a broadly based equity index does not generate an
Exposureto any Issuer.
Authorised Firmwhich receives cash on a repurchase agreement must treat the cash as if it is on its balance sheet and in accordance with sections PIB 4.9 and PIB 4.13. Any Collateralreceived against repurchase agreements or Securitiesand commodities borrowing must also be treated as a balance sheet item under sections PIB 4.9 and PIB 4.13.
Authorised Firmmust treat a reverse repurchase agreement or Securitiesand commodities lending in its Non-Trading Bookas a collateralised loan and the Collateralit holds as an asset, provided that the Collateralis eligible financial Collateralas defined in PIB Rule 4.13.5. If the Collateralis not such an eligible financial Collateral, the Authorised Firmmust treat the transaction as an unsecured loan to the Counterparty.
Authorised Firmwith repurchase agreements and reverse repurchase agreements in its Trading Bookhas an Exposureto:(a) the Issuerof the Securityit has sold in a repurchase agreement; and(b) the Counterpartywhere the Securitiesor cash given by the Authorised Firmexceed the Securitiesor cash it receives (i.e. there is a net margin given by the Authorised Firm) in a repurchase agreement or reverse repurchase agreement.
Authorised Firmmust calculate in accordance with PIB section 5.10 an Exposureto the Issuerarising from the Underwritingor sub-underwriting of a new Issueof Securities.