25.2.92 OfficialJournaloftheEuropeanCommunities NoC50/5
II
(Preparatory Acts)
COMMISSION
AmendedproposalforaCouncilDirectiveoncapitaladequacyofinvestment firmsandcredit
institutions (')
(92/C50/05)
COM(92)13final—SYN257
(SubmittedbytheCommission pursuanttoArticle149(3)oftheEECTreatyon27January1992)
andtransmission ofinvestors'orderswithout
holdingmoneyand/orsecuritiesontheirbehalf;Scope
Article 1
1.MemberStatesshallapplytherequirements ofthis
Directive toinvestment firmsandcreditinstitutions as
definedinArticle2.
2.AMemberStatemayimposeadditional ormore
stringentrequirements ontheinvestment firmsandcredit
institutions thatithasauthorized .(c)firms'shallmeancreditinstitutions andinvestment
firmsasdefinedabove;
(d)'investment service'shallmeanaserviceincludedin
SectionAoftheAnnextoDirective ../.../EEC(on
investment services);
(e)'financialinstruments 'shallmeantheinstruments set
outinSection BoftheAnnextoDirective
../.../EEC(oninvestment services);Definitions
Article2
ForthepurposeofthisDirective :
(a)'creditinstitutions 'shallmeanallinstitutions meeting
thedefinition inthefirstindentofArticle 1of
Directive 77/780/EEC(*)whicharesubjecttothe
requirements arising from Directive
89/647/EEC(3);
(b)'investment firms'shallmeanallinstitutions meeting
thedefinition inDirective ../.../EEC(on
investment services),excluding :
—creditinstitutions asdefinedabove,
—localfirmsasdefinedbelow,and
—investment firmsengagedpurelyinthebusiness
ofsupplying investment adviceand/orthe
reception(f)the'tradingbook'ofaninvestment firmoracredit
institution shallincludethosepositionsithastaken
oninthecourseofproviding investment services
associated withfinancialinstruments ,andentering
intotheagreements definedin(n)and(o)below.It
shallthereforeincludeitsproprietary positions in
financialinstruments whichareheldforresale,or
whicharetakenonbytheinvestment firmorthe
creditinstitution withtheintentionofbenefiting in
theshorttermfromactualorexpecteddifferences
betweentheirbuyingandsellingprices,orinorder
tohedgeotherelementsofthetradingbook,and
thoseotherexposureswhicharedirectlyrelatedto
boththeprovisionofinvestment servicesinfinancial
instruments andpoints(n)and(o)below.
Inclusionorexclusion ofitemsin,orfrom,the
tradingbookshallbeinaccordance withobjective
procedures including ,whereappropriate ,accounting
standards inthefirmconcerned ,suchprocedures
andtheirconsistentimplementation beingsubjectto
reviewbythecompetent authorities ;(')OJNoC152,21.6.1990,p.6.
C)OJNoL322,17.12.1977,p.30.
(3)OJNoL386,30.12.1989,p.14.

NoC50/6 OfficialJournaloftheEuropeanCommunities 25.2.92
(g)zoneA,zoneB,zoneAcreditinstitutions ,zoneB
creditinstitutions ,non-bank sectorandmultilateral
development banksshallbedefinedinaccordance
withArticle2ofDirective 89/647/EEC;(j)centralgovernment itemsshallmeanlongandshort
positionsintheassetsreferredtoinArticle6(1)(a)
andthoseassignedaweightof0%inArticle7,of
Directive 89/647/EEC;
(k)convertible shallmeanasecuritywhich,attheoption
oftheholder,canbeexchanged foranother
security,usuallytheequityoftheissuer;(h)over-the-counter (OTC)derivative instruments shall
meaninterest-rate andforeign-exchange contractsas
setoutinAnnexIIItoDirective 89/647/EECand
off-balance-sheet contracts basedonequities,
providedthat(i)allsuchcontractsarenottradedon
recognized exchanges wheretheyaresubjectto
dailymarginrequirements ,and(ii),inthecaseof
foreign-exchange contracts,theyhaveanoriginal
maturityofmorethan14calendardays;(1)warrantshallmeananinstrument issuedbythe
issueroftheunderlying security,whichgivesthe
holdertherighttopurchaseanumberofsharesof
commonstock,orbonds,atastipulatedpriceuntil
thewarrant'sexpiration date;
(m)coveredwarrantshallmeananinstrument issuedby
anentityotherthantheissueroftheunderlying
security,whichgivestheholdertherighttopurchase
anumberofsharesofcommonstock,orbonds,ata
stipulatedpriceuntilthewarrant'sexpirationdate;(i)qualifying itemsshallmeanlongandshortpositions
inassetsreferredtoinArticle6(1)(b)ofDirective
89/647/EEC;itshallalsomeanlongandshort
positionsindebtsecuritiesifsuchsecuritiesmeetthe
following conditions :thesecurities shallbothbe
listedonatleastonestockexchange inaMember
State,oronastockexchange inathirdcountry
providedthatthisexchange isrecognized bythe
competent authorities oftherelevantMemberState,
andbeconsidered bythefirmconcerned tobe
subjecttoadegreeofdefaultriskwhichis
comparable to,orlowerthan,thatoftheassets
referredtoinArticle6(1)(b)ofDirective
89/647/EEC.(n)repurchaseagreementandreverserepurchaseagreement
shallmeananagreement inwhichafirmtransfers
securitiessubjecttoacommitment torepurchase
them(orsubstituted securities ofthesame
description )ataspecifiedpriceandafuturedate
specified,ortobespecified,bythetransferor ,being
a'repurchase agreement 'forthefirmsellingthe
securitiesanda'reverserepurchase agreement 'for
thefirmbuyingthem;Themannerinwhichthesecurities areassessedas
qualifyingitemsornotshallbesubjecttoscrutinyby
thecompetent authorities ,whichshalloverturnthe
judgmentofthefirmiftheyconsiderthatthe
securitiesconcerned aresubjecttotoohighadegree
ofdefaultrisktobequalifyingitems.(o)securitieslendingagreementandsecuritiesborrowing
agreement shallmeananagreement inwhichafirm
lendssecuritiesandtakescollateralagainstthem
subjecttoacommitment ottakethem(orsubstituted
securitiesofthesamedescription )backandreturn
thecollateralataspecifiedpriceandatafuturedate
specified,ortobespecified,bythelender,beinga
securitieslendingagreementforthefirmlendingthe
securitiesandasecuritiesborrowing agreement for
thefirmborrowing them;Notwithstanding theabove,thecompetent auth­
oritiesshallhavethediscretion todeemsecurities
whichareratedbyatleasttwocredit-rating agencies
recognized bythecompetent authorities ,orbyonly
onesuchcredit-rating agencysolongastheyare
notratedbelowsuchalevelbyanyotherrating
agencyrecognized bythecompetent authorities ,ata
levelwhichsignifiesthattheyaresubjecttoadegree
ofdefaultrisk,whichiscomparable to,orlower
than,thatoftheassetsreferredtoinArticle6(1)(b)
ofDirective89/647/EECandwhichareasliquidas
thequalifying itemsdefinedintheprevious
paragraph ,tobequalifying items;(p)clearingmembershallmeanamemberofthe
exchangeand/ortheclearinghouse,havingadirect
contractual relationship withthecentral
counterparty (marketguarantor);non-clearing
membersmusthavetheirtradesroutedthrougha
clearingmember;

25.2.92 OfficialJournaloftheEuropeanCommunities NoC50/7
—thereceptionandtransmission ofinvestors'orders
forfinancialinstruments ,(q)localfirmshallmeanafirmdealingonlyforitsown
accountonafinancialfuturesoroptionsexchange
orfortheaccountsof,ormakingapriceto,other
membersofthesameexchange .Responsibility for
ensuringtheperformance ofcontractsenteredinto
bysuchafirmmustbeassumedbyaclearing
memberofthesameexchange ,andsuchcontracts
mustbetakenintoaccountinthecalculation ofthe
clearingmember'soverallcapitalrequirements :—theexecution ofinvestors'ordersforfinancial
instruments ,
—themanagement ofindividual portfolios of
investments infinancialinstruments ,
(r)deltashallmeantheexpectedchangeinanoption
priceasaproportion ofasmallchangeintheprice
oftheinstrument underlying theoption;providedthattheydonotdealinanyfinancial
instruments fortheirownaccountorunderwrite issues
offinancialinstruments onafirmcommitment basis.
(s)forthepurposesofparagraph 4ofAnnexI,long
positionshallmeanapositioninwhichafirmhas
fixedtheinterestrateitwillreceiveatsometimein
thefutureandshortpositionshallmeanapositionin
whichithasfixedtheinterestrateitwillpayatsome
timeinthefuture;2.However,thecompetent authorities mayrequire
thataninvestment firmwhichexecutesinvestors'orders
forfinancialinstruments andholdssuchinstruments for
itsownaccountshallhaveinitialcapitalofECU100000
ratherthanbesubjecttothelevelsetinparagraph 4
below,if:
(t)ownJundsshallmeanownfundsasdefinedin
Directive 89/299/EEC.However ,thisdefinition
maybemodified,inthecircumstances describedin
AnnexV;—suchpositionsariseonlyasaresultofitsfailure
preciselytomatchinvestors'orders,and
—thetotalmarketvalueofallsuchpositions issubject
toaceilingof25%oftheinvestment firm'sown
funds,and(u)initialcapitalshallmeanitems(1)and(2)of
paragraph 1ofArticle 2ofDirective
89/299/EEC0);
—theinvestment firmmeetsthecapitalrequirements set
outinthisDirective ,and
(v)originalownJundsshallmeanitems(1),(2)and(4)
minus(9),(10)and(11)ofparagraph 1ofArticle2
ofDirective 89/299/EEC;—suchpositionsareincidental andprovisional in
natureandstrictlylimitedtothetimerequiredto
carryoutthetransaction inquestion .
(w)capitalshallmeanownfunds;
(x)modifieddurationshallbecalculated usingthe
formuladescribedinparagraph 25ofAnnexI.3.MemberStatesmayreducethisamounttoECU
50000whereaninvestment firmisnotauthorized to
holdclients'moneyorsecurities ,nortodealasa
principal,nortounderwrite exceptwherethefirmis
involvedonlyinthedistribution ofissuesonabest
effortsbasis.
4.Allotherinvestment firmsshallhaveinitialcapital
ofECU500000.Initialcapitalforinvestment firms
Article3
1.Investment firmswhichholdclients'moneyand/or
securitiesandwhichofferoneormoreofthefollowing
servicesshallhaveinitialcapitalofECU100000:5.Eachinvestment firmshallcalculate itscapital
requirement underAnnexIVhereto.Itsownfundsshall
notfallbelowwhichever isthehigherofthisamountand
thelevelofinitialcapitallaiddownforthefirminpara­
graphs 1to4above. (')OJNoL124,5.5.1989,p.16.

NoC50/8 OfficialJournaloftheEuropeanCommunities25.2.92
(iii)thecapitalrequirement setoutinDirective
89/647/EEConalloftheirnon-trading book
business,withtheexceptionoftheilliquidassetsof
thoseinvestment firmsapplyingthedefinition of
ownfundssetoutinparagraph 2ofAnnexV;6.Notwithstanding paragraph 5,MemberStatesmay
continue theauthorization ofinvestment firmsin
existencebeforethisDirective isimplemented whose
ownfundsarelessthantheinitialcapitallevelsspecified
fortheminparagraph 5.Theownfundsofsuch
investment firmsshallnotfallbelowthehighest
referencelevelcalculated afterthedateofnotification of
thisDirective .Thereference levelshallbetheaverage
dailylevelofownfundscalculatedoverasix-month
periodprecedingthedateofcalculation .Thisreference
levelshallbecalculated everysixmonthsinrespectof
thecorresponding precedingperiod.(iv)thecapitalrequirement setoutunderparagraph 2
below:
(v)irrespective oftherequirements calculated in(i)to
(iii)abovetheownfundsrequirement for
investment firmsshallneverbelessthanthe
requirement setinAnnexIV.7.Ifcontrolofaninvestment firmfallingwithin
paragraph 6istaken,otherthanthroughinheritance ,by
anaturalorlegalpersonotherthanthepersonwho
controlled itpreviously ,theownfundsofthatinvestment
firmmustattainatleastthelevelspecifiedinparagraph
5.
2.Thecompetent authorities shallrequirefirmsto
covertherisksarisinginconnection withbusinessthatis
outsidethescopeofboththisDirectiveandDirective
89/647/EECbyadequateownfunds.8.Nevertheless ,incertainspecificcircumstances and
withtheconsentofthecompetent authorities ,where
thereisamergeroftwoormoreinvestment firms,the
ownfundsoftheinvestment firmresultingfromthe
mergerneednotattainthelevelspecifiedinparagraph 5.
However ,duringaperiodwhenthelevelsreferredtoin
paragraph 5havenotbeenattained,theownfundsof
thenewinvestment firmmaynotfallbelowthetotal
ownfundsofthemergedinvestment firmsatthetimeof
themerger .3.Thecompetent authorities shallrequirefirmstoset
upsystemstomonitorandcontroltheinterest-raterisk
onalloftheirbusiness,thesesystemsbeingsubjectto
approvalbythecompetent authorities .
9.Aninvestment firm'sownfundsmaynotfallbelow
thelevelspecifiedforitunderparagraphs 5,6,7and8.
However ,iftheydo,thecompetent authorities may,
wherethecircumstances justifyit,allowaninvestment
firmalimitedperiodinwhichtorectifyitssituationor
ceaseitsactivities .4.Firmsshallberequiredtosatisfytheircompetent
authorities thattheyhaveadequatesystemstocalculate
withreasonable accuracyatanytimethefinancial
positionofthefirm.
5.Notwithstanding paragraph 1above,thecompetent
authorities mayallowfirmstocalculatethecapital
requirements fortheirtradingbookbusinessaccording
toDirective 89/647/EECratherthanaccording to
AnnexesI,II,IVandVIbelow,providedthat:Provisions againstrisks
Article4
1.Firms'ownfundsrequirements shallbethesumof:
(i)thetradingbookbusinessofthesecreditinstitutions
andinvestment firmsdoesnotnormallyexceed5%
oftheirtotalbusiness ;(i)thecapitalrequirement ,calculated inaccordance
withAnnexesI,IIandVIhereto,ontheirtrading
bookbusiness ;
(ii)thecapitalrequirement ,calculated inaccordance
withAnnexIIIhereto,ontheiroverallbusiness ;(ii)theirtotaltradingbookpositiondoesnotnormally
exceedtheamountofECU15million .

25.2.92 OfficialJournaloftheEuropeanCommunities NoC50/9
Inadditiontheymayallowforeignexchangepositions
subjecttoAnnexIIIinonefirmtooffsetforeign
exchangepositionssubjecttoAnnexIII,inanotherfirm,
according totherulessetoutinAnnexIII,providing
thateachofthefirmsconcerned areobligedtomeet
theircapitalrequirements onasolobasis.6.Inordertocalculatetheshareoftradingbook
businesscomparedtototalbusinessinparagraph 5(i)
above,thecompetent authorities mayrefereithertothe
sizeofthecombined on-,andoff-,balancesheet
business,ortotheprofitandlossaccount,ortotheown
funds,ofthefirmsinquestion,ortoacombination of
thesemeasures .Inassessingthesizeofon-,andoff-,
balancesheetbusiness,fixed-rate securities shallbe
valuedattheirmarketpriceortheirprincipalvalue,
equitiesattheirmarketpriceandderivatives according
tothenominal,ormarket,valueoftheinstruments
underlying them.3.Thecompetent authorities chargedwithexercising
supervision onaconsolidated basismayrecognize the
validityofthespecificownfundsdefinitions applicable
tothefirmsconcerned underAnnexVinthecalculation
oftheirconsolidated ownfunds.
7.Ifacreditinstitution orinvestment firmshould
happentoexceedformorethanashortperiodoftime,
either,orboth,ofthelimitssetinparagraph 5,itshall
berequiredtomeettherequirements setoutin
paragraph 1above,andnotthoseofDirective
89/647/EEC,inrespectofitstradingbookbusiness,and
tonotifythesupervisory authority .Reporting requirements
Article7
1.MemberStatesshallrequirethatfirmsprovidethe
competent authorities ofthehomeMemberStatewithall
theinformation necessarytoassesstheircompliance with
therulesadoptedinaccordance withthisDirective .
Member Statesshallalsoensurethatfirms'internal
controlmechanisms andadministrative andaccounting
procedures permittheverification oftheircompliance
withsuchrulesatalltimes.Valuationofpositionsforreportingpurposes
Article5
1.Firmsshallmarktomarkettheirtradingbooksona
dailybasis,unlesstheyaresubjecttotheprovisions of
Article4(5). 2.Investment firmsshallbeobligedtoreporttothe
competent authorities inthemannerspecifiedbythe
latteratleastonceeverymonthinthecaseoffirms
coveredbyArticle3(4)above,atleastonceeverythree
monthsinthecaseofthosefirmscoveredbyArticle3
(1)and3(2),andatleasteverysixmonthsinthecaseof
thosefirmscoveredbyArticle3(3).2.Intheabsenceofreadilyavailablemarketprices,
e.g.inthecaseofdealinginnewissuesontheprimary
markets,theauthorities maywaivetherequirement
underparagraph 1andrequirefirmstousealternative
methodsofvaluationprovidedthatthesemethodsare
sufficiently prudentandhavebeenapproved by
competent authorities .3.Creditinstitutions shallbeobligedtoreportinthe
mannerspecifiedbythecompetent authorities withthe
samefrequency astheyareobligedtoreportunder
Directive 89/647/EEC.
Supervision onaconsolidated basis
Article6
1.Paragraphs 2and3shallapplywhenoneofthe
firmsincludedwithinthescopeoftheconsolidation
requiredunderDirective ../.../EEC(supervision ona
consolidated basis)hasatradingbook.Competent authorities
Article8
1.MemberStatesshalldesignatetheauthorities which
aretocarryoutthedutiesprovidedforinthisDirective .
TheyshallinformtheCommission thereof,indicating
anydivisionofduties.
2.Thecompetent authorities maypermitnetpositions
inthetradingbookofonefirmtooffsetpositionsinthe
tradingbookofanotherfirmaccordingtotherulesset
outinAnnexesIandVIbelow,providingthateachof
thefirmsconcerned isobligedtomeetitscapital
requirements onasolobasis.2.Theauthorities referredtoinparagraph 1mustbe
publicauthorities orbodiesofficiallyrecognized by
nationallaworbypublicauthorities tobepartofthe
supervisory systemprevailing intherelevantMember
State.

NoC50/10 OfficialJournaloftheEuropeanCommunities 25.2.92
3.Theauthorities concerned mustbegrantedallthe
powersnecessarytocarryouttheirtasks,inparticular
thatofoverseeing howthetradingbookisconstituted .
4.Thecompetent authorities ofdifferentMember
Statesshallcollaborate closelytocarryouttheduties
providedforinthisDirective ,particularly when
investment servicesareprovidedonaservicesbasisorby
theestablishment ofbranches inoneormoreMember
States.Theyshallsupplyoneanotheronrequestwithall
information likelytofacilitatethesupervision ofthe
capitaladequacyoffirmsandparticularly theverification
oftheircompliance withtheruleslaiddowninthis
Directive .Anyexchange ofinformation between
competent authorities whichisprovidedforinthis
Directiveinrespectofinvestment firmsshallbesubject
totheobligation ofprofessional secrecyassetoutin
Article20ofDirective ../.../EEC(oninvestment
services)and,inrespectofcreditinstitutions ,subjectto
theobligation setoutinArticle12ofCouncilDirective
77/780/EEC,asmodified byCouncilDirective
89/646/EEC(l).—modification ofthetimeperiodusedinAnnexIV,
—thealignmentofterminology onandtheframingof
definitions inaccordance withsubsequent actson
firmsandrelatedmatters .
2.TheCommission shallbeassistedbyacommittee
composed ofrepresentatives oftheMemberStatesand
chairedbyarepresentative oftheCommission .
TheCommission representative shallsubmittothe
committee adraftofthemeasures tobetaken.The
committee shalldeliveritsopiniononthedraftwithina
timelimitwhichthechairmanmaylaydownaccording
totheurgencyofthematter.Theopinionshallbe
deliveredbythemajoritylaiddowninArticle148(2)of
theEECTreatyinthecaseofdecisionswhichthe
Councilisrequiredtoadoptonaproposalfromthe
Commission .Thevotesoftherepresentatives ofthe
MemberStatesinthecommittee shallbeweighted ina
mannersetoutinthatArticle .Thechairman shallnot
vote.
TheCommission shalladoptthemeasuresenvisaged if
theyareinaccordance withtheopinionofthe
committee .
Ifthemeasuresenvisagedarenotinaccordance withthe
opinionofthecommittee ,orifnoopinionisdelivered ,
theCommission shall,withoutdelay,submittothe
Councilaproposalconcerning themeasurestobetaken.
TheCouncilshallactbyaqualifiedmajority .
IftheCouncildoesnotactwithinthreemonthsofthe
referraltoit,theproposedmeasureshallbeadoptedby
theCommission .Article9
1.Thetechnical modifications tobemadetothis
Directive inthefollowing areasshallbeadoptedin
accordance withtheprocedure laiddowninparagraph
2:
—clarification ofthedefinitions inArticle2inorderto
ensureuniform application ofthisDirective
throughout theCommunity ,
—modification ofthedefinitions inArticle2totake
accountofdevelopments onfinancialmarkets,
—alterationoftheamountsofinitialcapitalprescribed
inArticle3totakeaccountofdevelopments inthe
economic andmonetary field,
—adaptation oftheceilingsreferredtoinArticle4(5),Transitional provisions
Article10
MemberStatesmayauthorizeinvestment firmssubjectto
Directive ../.../EEC(oninvestment services)whose
ownfundsarelessthanthelevelsspecifiedforthemin
paragraph 5ofArticle3above.However ,theownfunds
ofsuchinvestment firmsmustthereafter meetthe
conditions laiddowninparagraphs 6to9ofArticle3.—adaptation oftheprocedures forcalculating netopen
positionsinAnnexesIandIII,
—adaptation oftheweightings inAnnexesI,IIandIII,
inordertotakeaccountofdevelopments onfinancial
markets ,Finalprovisions
Article11
1.MemberStatesshallbringintoforcethelaws,
regulations andadministrative provisions necessary to
complywiththisDirectiveby[1January1993]atthe (')OJNoL386,30.12.1989,p.1.

25.2.92 OfficialJournaloftheEuropeanCommunities NoC50/11
latest.Theprovisions adoptedshallmakeexpress
referencetothisDirective .Theyshallforthwithinform
theCommission thereof .
2.Member Statesshallcommunicate tothe
Commission thetextsofthemainprovisionsofnationallawwhichtheyadoptinthefieldgoverned bythis
Directive .
Article12
ThisDirective isaddressed totheMemberStates.
ANNEXI
POSITION RISK
INTRODUCTION
Netting
1.Theexcessofthefirm'slong(short)positionsoveritsshort(long)positionsinthesameequity,debt
andconvertible issuesandidenticalfinancialfutures,optionsandwarrantscontractsshallbeitsnet
positionineachofthedifferentinstruments .Incalculating thenetpositionthecompetent authorities
shallallowpositionsinderivativeinstruments tobetreated,inthemannerspecifiedinparagraphs 4to
6below,aspositionsintheunderlying (ornotional)security/securities .
2.Nonettingshallbeallowedbetweenaconvertible andanoffsettingpositionintheinstrument
underlying it,unlessthecompetent authorities adoptanapproachunderwhichthelikelihood ofa
particularconvertible beingconverted istakenintoaccountorhaveacapitalrequirement tocoverany
potentiallosswhichcouldbeincurredonconversion .
3.Allnetpositions ,irrespective oftheirsign,mustbeconvertedonadailybasisintothefirm'sreporting
currencyattheprevailingspotexchangeratebeforetheiraggregation .
Particular instruments
4.Interest-rate futures,forward-rate agreements (FRAs)andforwardcommitments tobuyorsell
financialinstruments shallbetreatedascombinations oflongandshortpositions .Thusalonginterest
ratefuturespositionshallbetreatedasacombination ofaborrowing maturingonthedeliverydateof
thefuturescontractandtheholdingofanassetwithamaturitydateequaltothatofthe(notional)
instrument underlying thefuturescontractinquestion .SimilarlyasoldFRAwillbetreatedasalong
positionwithamaturitydateequaltothesettlementdateplusthecontractperiod,andashortposition
withmaturityequaltothesettlementdate.Boththeborrowing andassetholdingshallbeincludedin
thecentralgovernment columnofTable1inparagraph 13inordertocalculatethecapitalrequired
againstspecificriskforthesetwoinstruments .Thecompetent authorities mayallowthecapital
requirement foranexchange-traded futuretobeequaltothemarginheldattheexchangeiftheyare
fullysatisfiedthatitprovidesanaccuratemeasureoftheriskassociatedwiththefutureandthatthe
methodusedtocalculatethemarginisequivalent tothemethodofcalculation setoutintherestof
thisAnnexforsuchfutures .
5.Optionsoninterestrates,debtinstruments ,equities,equityindices,financialfutures,swapsandforeign
currencies shallbetreatedasiftheywerepositionsequalinvaluetotheamountoftheunderlying
instrument towhichtheoptionrefers,multipliedbyitsdeltaforthepurposesofthisAnnex.Thelatter
positionsmaybenettedoffagainstanyoffsettingpositionsintheidenticalunderlying securitiesor
derivatives .Thedeltausedshallbethatoftheexchangeconcerned ,orthatcalculated bythe
competent authorities ,orwherethisisnotavailableorforOTCoptions,thatcalculated bythefirm
itself,subjecttothecompetent authorities beingsatisfiedthatthemodelusedbythefirmisreasonable .

NoC50/12 OfficialJournaloftheEuropeanCommunities 25.2.92
Howeverthecompetent authorities mayalsoprescribethatfirmscalculatetheirdeltasusingametho­
dologyspecifiedbythecompetent authorities .Thecompetent authorities shallrequirethattheother
risks,apartfromthedeltarisk,associatedwithoptionsaresafeguarded against.
6.Thecompetent authorities mayallowtherequirement againstapositioninanexchange-traded option
tobeequaltothemarginrequiredbytheexchangeiftheyarefullysatisfiedthatitprovidesan
accuratemeasureoftheriskassociated withtheoptionandthatthemethodusedtocalculatethe
marginisequivalenttothemethodofcalculation setoutintherestofthisAnnexforsuchoptions .In
additiontheymayallowtherequirement onaboughtexchange-traded orOTCoptiontobethesame
asthatfortheinstrument underlying it,subjecttotheconstraintthattheresultingrequirement does
notexceedthemarketvalueoftheoption.Therequirement againstawrittenOTCoptionshallbeset
inrelationtotheinstrument underlying it.
7.Warrants ,andcoveredwarrants,shallbetreatedinthesamewaythatoptionsaretreatedinpara­
graphs5and6.
8.Swapsshallbetreatedforinterest-rate riskpurposesonthesamebasisason-balance-sheet instruments .
Thusaninterest-rate swapunderwhichafirmreceivesfloating-rate interestandpaysfixed-rate
interestshallbetreatedasequivalent toalongpositioninafloating-rate instrument ofmaturity
equivalent totheperioduntilthenextinterest-fixing andashortpositioninafixed-rateinstrument
withthesamematurityastheswapitself.
9.However ,firmswhichmarktomarketandmanagetheinterestrateriskonthederivativeinstruments
coveredinparagraphs 4to8onadiscounted cashflowbasismayusesensitivitymodelstocalculate
thepositionsreferredtoabove.Boththemodelanditsusebythefirmmustbeapprovedbythe
competent authorities .Thesemodelsshouldgeneratepositionswhichhavethesamesensitivity to
interestratechangesastheunderlying cashflows.Thissensitivity mustbeassessedbyreferenceto
independent movements insampleratesacrosstheyieldcurve,withatleastonesensitivitypointin
eachofthematuritybandssetoutinTable2below.Thepositionsshallbeincludedinthecalculation
ofcapitalrequirements accordingtotheprovisions laiddowninparagraphs 14to29below.
10.Thesellerofsecuritiesinarepurchase agreement ,andthelenderofsecuritiesinastocklending
agreement ,shallincludethesesecuritiesinthecalculation ofitscapitalrequirement underthisAnnex.
Specificandgeneralrisks
11.Thepositionriskonatradeddebtinstrument orequity(orequityderivative )shallbedividedintotwo
components inordertocalculatethecapitalrequiredagainstit.Thefirstshallbeitsspecificrisk
component —thisistheriskofapricechangeintheinstrument concerned duetofactorsrelatedtoits
issuer(inthecaseofacashinstrument ).Thesecondcomponent shallcoveritsgeneralrisk—thisis
theriskofapricechangeintheinstrument due(inthecaseofatradeddebtinstrument )toachangein
thelevelofinterestratesor(inthecaseofanequityorequityderivate)toabroadequitymarket
movement unrelatedtoanyspecificattributesofindividualsecurities .

25.2.92 OfficialJournaloftheEuropeanCommunities NoC50/13
TRADED DEBTINSTRUMENTS
12.Thefirmshallclassifyitsnetpositionsaccordingtothecurrencyinwhichtheyaredenominated and
shallcalculatethecapitalrequirement forgeneralandspecificriskineachindividual currency
separately .
Specificrisk
13.Thefirmshallassignitsnetpositions ,ascalculated inparagraph 1,totheappropriate categories inthe
firstrowofTable1onthebasisoftheirresidualmaturitiesandthenmultiplythembytheweights
showninthesecondrow.Itshallsumitsweightedpositions (regardlessofwhethertheyarelongor
short)inordertocalculateitscapitalrequirement againstspecificrisk.
TABLE 1
Centralgovernment
itemsQualifying items Otheritems
upto6monthsover6andupto
24monthsover24months
0,00% 0,25% 1,00% 1,60% 8,00%
Notwithstanding theabove,MemberStatesmaysetaspecificriskrequirement foranybondsassigned
aweightof10%inDirective89/647/EECbyvirtueofArticle11(2)ofthatDirective ,equaltohalf
thespecificriskrequirement foraqualifying itemwiththesameresidualmaturityassuchabond.
Generalrisk
(a)Maturity-based
14.Theprocedure forcalculating capitalrequirements againstgeneralriskinvolvestwobasicsteps.First,
allpositionsshallbeweightedaccording tomaturity (asexplained inparagraph 15)inorderto
computetheamountofcapitalrequiredagainstthem.Second,allowance shallbemadeforthis
requirement tobereducedwhenaweightedpositionheldalongsideanoppositeweightedpositionfalls
withinthesamematurityband.Areductionintherequirement shallalsobeallowedwhentheopposite
weightedpositionsfallintodifferentmaturitybands,withthesizeofthisreductiondependingbothon
whetherthetwopositionsfallintothesamezone,ornot,andontheparticularzonestheyfallinto.
Therearethreezones(groupsofmaturitybands)altogether .
15.Thefirmshallassignitsnetpositionstotheappropriate maturitybandsinthesecondorthirdcolumn,
asappropriate ,inTable2below.Itshalldosoonthebasisofresidualmaturityinthecaseof
fixed-rate instruments andonthebasisoftheperioduntiltheinterestrateisnextsetinthecaseof
instruments onwhichtheinterestrateisvariablebeforefinalmaturity .Itshallalsodistinguish between
debtinstruments withacouponof3%ormoreandthosewithacouponoflessthan3%andthus
allocatethemtoeitherthesecondorthirdcolumnsinTable2.Itshallthenmultiplyeachofthemby
theweightpresentedforthematuritybandinquestioninthefourthcolumnofTable2.
16.Itshallthenworkoutthesumoftheweightedlongpositions ,andthesumoftheweightedshort
positions ,ineachmaturityband.Theamountoftheformerwhicharematchedbythelatterinagiven
maturitybandshallbethematchedweightedpositioninthatband,whiletheresiduallongorshort
positionshallbetheunmatched weightedpositionforthesameband.Thetotalofthematched
weightedpositionsinallbandsshallthenbecalculated .

25.2.92 NoC50/14 OfficialJournaloftheEuropeanCommunities
17.Thefirmshallcomputethetotalsoftheunmatched weightedlongpositionsforthebandsincludedin
eachofthezonesinTable2inordertoderivetheunmatched weightedlongpositionforeachzone.
Similarly ,thesumoftheunmatched weightedshortpositionsforeachbandinaparticularzoneshall
besummedtocomputetheunmatched weightedshortpositionforthatzone.Thatpartofthe
unmatched weightedlongpositionforagivenzonethatismatchedbytheunmatched weightedshort
positionforthesamezoneshallbethematchedweightedpositionforthatzone.Thatpartofthe
unmatched weightedlong,orunmatched weightedshort,positionforazonethatcannotbethus
matchedshallbetheunmatched weightedpositionforthatzone.
TABLE 2
Maturityband
Weight
(%)Assumed interest
Zone
Couponof3%ormoreCouponoflessthan3%rateexchange
(°/o)
(1) (2) (3) (4) (5)
1 0—1month
1—3months
3—6months
6—12months0—1month
1—3months
3—6months
6—12months0,00
0,20
0,40
0,701,00
1,00
1,00
2 1—2years
2—3years
3—4years1,0—1,9years
1,9—2,8years
2,8—3,6years1,25
1,75
2,250,90
0,80
0,70
3 4—5years
5—7years
7—10years
10—15years
15—20years
20years3.6—4,3years
4,3—5,7years
5.7—7,3years
7,3—9,3years
9,3—10,6years
10,6—12,0years
12,0—20,0years
20years2,75
3,25
3,75
4,50
5,25
6,00
8,40
13,00,75
0,70
0,65
0,60
0,60
0,60
0,60
0,60
18.Theamountoftheunmatched weightedlong(short)positioninzone1whichismatchedbythe
unmatched weightedshort(long)positioninzone2shallthenbecomputed .Thisshallbereferredto
inparagraph 22asthematchedweightedpositionbetweenzones1and2.Thesamecalculation shall
thenbeundertaken withregardtothatpartoftheunmatched weightedpositioninzone2whichisleft
overandtheunmatched weightedpositioninzone3inordertocalculatethematchedweighted
positionbetweenzones2and3.
19.Thefirmmay,ifitwishes,reversetheorderinparagraph 18soastocalculatethematchedweighted
positionbetweenzones2and3beforeworkingoutthatbetweenzones1and2.
20.Theremainder oftheunmatched weightedpositioninzone1shallthenbematchedwithwhatremains
ofthatforzone3afterthatzone'smatchingwithzone2,inordertoderivethematchedweighted
positionbetweenzones1and3.
21.Residualpositions ,followingthethreeseparatematchingcalculations inparagraphs 18to20above,
shallbesummed .
22.Thefirm'scapitalrequirement shallbecalculated asthesumof:
(a)10%ofthesumofthematchedweightedpositionsinallmaturitybands;

25.2.92 OfficialJournaloftheEuropeanCommunities NoC50/15
(b)30%ofthematchedweightedpositioninzone1;
(c)20°/oofthematchedweightedpositioninzone2;
(d)20%ofthematchedweightedpositioninzone3;
(e)30%ofthematchedweightedpositionbetweenzones1and2andbetweenzones2and3(see
paragraph 19);
(f)100%ofthematchedweightedpositionbetweenzones1and3;
(g)100%oftheresidualunmatched weightedpositions .
(b)Duration-based
23.Thecompetent authorities inaMemberStatemayallowfirms,ingeneraloronanindividual basis,to
useasystemforcalculating thecapitalrequirement forthegeneralriskontradeddebtinstruments
whichreflectsduration ,insteadofthesystemsetoutinparagraphs 14to22above.
24.Undersuchasystemthefirmshalltakethemarketvalueofeachfixed-ratedebtinstrument andthence
calculateitsyieldtomaturity ,whichistheimplieddiscountrateforthatinstrument .Inthecaseof
floating-rate instruments thefirmshalltakethemarketvalueofeachinstrument andthencecalculate
itsyieldontheassumption thattheprincipal isduewhentheinterestratecannextbechanged .
25.Thefirmshallthencalculate themodified durationofeachdebtinstrument onthebasisofthe
followingformula :
modifiedduration=duration (DV
(1+r)
where
r=yieldtomaturity
Ct=cashpaymentintimet
m=totalmaturity(seeparagraph 24).

NoC50/16 OfficialJournaloftheEuropeanCommunities 25.2.92
26.Itshallthenallocateeachofthemtoitsappropriate zoneinTable3below.Itshall
dosoonthebasisofthemodifieddurationofeachinstrument .
TABLE 3
ZoneModified duration
(inyears)Assumed interest
(%change)
(D (2) (3)
1 0<1,0 1,0
2 1,0<3,6 0,85
3 3,6 0,7
27.Thefirmshallthencalculatetheduration-weighted positionforeachinstrument bymultiplying its
marketpricebyitsmodifieddurationandbytheassumedinterestratechangeforaninstrument with
thatparticularmodifiedduration (seethirdcolumnofTable3).
28.Thefirmshallworkoutitsduration-weighted long,anditsduration-weighted short,positionswithin
eachzone.Theamountoftheformerwhicharematchedbythelatterwithineachzoneshallbethe
matchedduration-weighted positionforthatzone.Thefirmshallthencalculatetheunmatched
duration-weighted positionsforeachzone.Itshallthenfollowtheprocedures laiddownfor
unmatched weightedpositionsinparagraphs 18to21above.
29.Thefirm'scapitalrequirement shallthenbecalculated asthesumof:
(a)10%ofthematchedduration-weighted positionforeachzone;
(b)30°/oofthematchedduration-weighted positionbetweenzones1and2andbetweenzones2and
3;
(c)100%ofthematchedduration-weighted positionbetweenzones1and3;
(d)100%oftheresidualunmatched duration-weighted positions .
EQUITIES
30.Thefirmshallsumallitsnet—according toparagraph 1—longpositionsandallitsnetshort
positions .Thesumofthetwofiguresshallbeitsoverallgrosspositions .Theexcessofoneoverthe
othershallbeitsoverallnetposition .
Specificrisk
31.Itshallmultiplyitsoverallgrosspositionby4%inordertocalculateitscapitalrequirement against
specificrisk.
32.Notwithstanding paragraph 31,thecompetent authorities mayallowthecapitalrequirement against
specificrisktobereducedtoaminimumof2%,andnot4%,oftheoverallgrosspositionforthose
portfoliosofequitiesthatafirmholdswhichmeetthefollowingconditions .First,theequitiestherein
shallnotbethoseofissuerswhichhaveissuedanytradeddebtinstruments thatcurrentlyattractan
8%requirement underTable1above.Second,theymustbeadjudgedhighlyliquidbythecompetent
authorities concerned .Third,noindividualpositionwithinsuchaportfolioshallcomprisemorethan
5%ofthevalueoftheoverallgrosspositionoftheportfolio .

25.2.92 OfficialJournaloftheEuropeanCommunities NoC50/17
Generalrisk
33.Itscapitalrequirement againstgeneralriskshallbeitsoverallnetpositionmultipliedby8%.
Stock-index futures
34.Stock-index futures,andthedelta-weighted equivalents ofoptionsinstockindexfuturesandstock
indices(seeparagraph 5above)shallbebrokendownintopositionsineachoftheirconstituent
equities .Thesepositionsshallbetreatedasunderlying positionsintheequitiesinquestion ;therefore ,
subjecttotheapprovalofthecompetent authorities ,theyshallbenettedagainstoppositepositionsin
theunderlying equitiesthemselves .
35.Thecompetentauthorities shallensurethatanyfirmwhichhasnettedoffitspositionsinoneormore
oftheequitiesconstituting astock-index futureagainstoneormorepositionsinthestock-index future
itselfhasadequatecapitaltocovertheriskoflossarisingfromthevalueofthefuturenotmovingfully
inlinewiththatofitsconstituent equities;theyshallalsodothiswhenafirmholdsoppositepositions
instock-index futureswhicharenotidenticalinrespectofeithertheirmaturityortheircomposition ,
orboth.
36.Notwithstanding paragraphs 34and35,stock-index futureswhichareexchange-traded andrepresent
—intheopinionofthecompetent authorities —broadlydiversified indicesshallattractacapital
requirement againstgeneralriskof8°/o,butnocapitalrequirement againstspecificrisk.Such
stock-index futuresshallbeincludedinthecalculation oftheoverallnetpositioninparagraph 30,but
disregarded inthecalculation oftheoverallgrosspositioninthesameparagraph .
Underwriting
37.Inthecaseoftheunderwriting ofdebtandequityinstruments ,thecompetent authorities mayallowa
firmtousethefollowingprocedure incalculating itscapitalrequirements .First,itshallcalculateitsnet
positionsbydeductingtheunderwriting positionswhicharesubscribed orreunderwritten ,bythird
parties;second,itshallreduceitsnetpositionsbythefollowingreductionfactors:
workingday1: 90%,
workingdays2to3: 75%,
workingday4: 50%,
workingday5: 25%,
afterworkingday5: 0%.
Workingday1shallbetheworkingdayfollowingthatonwhichthefirmbecomesunconditionally
committed toaccepting aknownquantityofsecuritiesatanagreedpriceunderthetermsofthe
underwriting agreement .Third,itshallcalculateitscapitalrequirement usingthereducedunderwriting
positions .

NoC50/18 OfficialJournaloftheEuropeanCommunities 25.2.92
ANNEXII
SETTLEMENT ANDCOUNTERPARTY RISK
1.Inthecaseoftransactions inwhichbondsandequities(excludingrepurchase andreverserepurchase
agreements )areunsettledbeforetheirduedeliverydates,thereshallbenocapitalrequirement .Inthe
caseoftransactions inwhichbondsandequities(excluding repurchase andreverserepurchase
agreements )areunsettledaftertheirduedeliverydates,afirmmustcalculatethepricedifferenceto
whichitisexposed .Thisisthedifferencebetweentheagreedsettlementpriceforthebondorequityin
questionanditscurrentmarketvalue,wherethedifferencecouldinvolvealossforthefirm.Itmust
multiplythisdifference bytheappropriate factorinColumnAofTable1inordertocalculateitscapital
requirement .
2.Notwithstanding paragraph 1,afirmmay,atthediscretionofitscompetent authorities ,calculateits
capitalrequirements bymultiplying theagreedsettlementpriceofeverytransaction whichisunsettled
between5and45workingdaysafteritsduedatebytheappropriate factorinColumnBofTable1.As
from46workingdaysaftertheduedateitshalltaketherequirement tobe100%oftheprice
difference towhichitisexposed,asinColumnA.
TABLE 1
Numberofdaysafterduesettlement dateColumn A
(%)Column B
(%)
5—15 8 0,5
16—30 50 4,0
31—45 75 9,0
46ormore 100 Seeparagraph 2
Freedeliveries
3.Afirmshallberequiredtoholdcapitalagainstcounterparty riskif:
(i)ithaspaidforsecuritiesbeforereceivingthemorithasdeliveredsecuritiesbeforereceivingpayment
forthem;and
(ii)threedaysormorehaveelapsedsinceitmadethispaymentordelivery .Thereafter acredit
institution ,oraninvestment firmwhichisnotsubjecttotheilliquidassetsdeduction inparagraph 2
ofAnnexV,shallberequiredtohold8%ofthevalueofthesecuritiesorcashoweditascapital
wherethecounterparty isintheprivatesectorbutnotafirm,1,6%ofthesumwhereitisafirmor
inthepublicsector,and0%ifitisthecentralgovernment .Aninvestment firmwhichissubjectto
theilliquidassetsdeduction inparagraph 2ofAnnexVshalltreatthevalueofthesecuritiesofcash
owedasanilliquidasset.
Repurchase agreements
4.Inthecaseofrepurchase andsecuritieslendingagreements thefirmshallcalculatethedifference
betweenthemarketvalueofthesecuritiesandtheamountborrowed bythefirmorthemarketvalueof
thecollateral ,wherethisdifference ispositive.Inthecaseofreverserepurchase andsecurities
borrowing agreements thefirmshallcalculatethedifferencebetweentheamountthefirmhaslentor

25.2.92 OfficialJournaloftheEuropeanCommunities NoC50/19
themarketvalueofthecollateral andthemarketvalueofthesecurities ithasreceived ,wherethis
difference ispositive .Thecompetent authorities mayallowmarginprovidedbytheborrowertothe
lendertobetakenaccountofinthecalculations described intheprevioustwosentences .Accrued
interestshallbeincludedincalculating themarketvalueofamountslentorborrowedandcollateral .
5.Thecapitalrequirement shallbe8%ofthefigureemergingfromparagraph 4wherethecounterparty is
intheprivatesectorbutnotacreditinstitutionoraninvestment firm,1,6%ofthesumwhereitisa
creditinstitution ,aninvestment firmorinthepublicsectorand0%ifitisthecentralgovernment .
OTCderivative instruments
6.Inordertocalculatethecapitalrequirement ontheirOTCderivativeinstruments ,thefirmshallapply
AnnexIIofDirective 89/647/EECinthecaseofinterest-rate ,andexchange-rate ,contracts ;OTC
equityoptionsandcoveredwarrantsshallbedealtwithunderMethod 1ofAnnexIIofDirective
89/647/EEC,exceptthatthepotentialfuturecreditexposureshallbecalculated bymultiplying the
marketvalueoftheunderlying equityby8%.
Other
7.Therequirements ofDirective 89/647/EECshallapplytoothertradingbookexposuresincludingfees
andcommission incomedue,whicharenotcoveredinAnnexesIandIIabove.
ANNEX III
FOREIGN-EXCHANGE RISK
1.Ifthefirm'soverallnetforeign-exchange position,calculated inaccordance withtheprocedure setout
below,exceeds2°/oofitstotalownfunds,itshallmultiplytheexcessby8%inordertocalculateits
ownfundsrequirement againstforeignexchangerisk.
2.Atwo-stagecalculation shallbeused.
3.First,thefirm'snetopencurrencypositionineachcurrency (includingthereportingcurrency)shallbe
calculated .Thispositionshallconsistoftheadditionofthefollowingelements(positiveornegative):
—thenetspotposition(i.e.allassetitemslessallliabilityitems,includingaccruedinterest,inthe
currencyinquestion),
—thenetforwardposition(i.e.allamountstobereceivedlessallamountstobepaidunderforward
exchangetransactions ,includingcurrencyfuturesandtheprincipaloncurrencyswapsnotincluded
inthespotposition),
—irrevocable guarantees (andsimilarinstruments )thatarecertaintobecalled,
—netfutureincome/expensesnotyetaccruedbutalreadyfullyhedged(atthediscretion ofthe
reportinginstitutions andwiththepriorconsentofthecompetent authorities ,netfutureincome/
expensesnotyetregistered intheaccounting recordsbutalreadyfullyhedgedbyforwardforeign­
exchangetransactions maybeincludedhere.Suchdiscretion mustbeexercisedonaconsistent
basis),

NoC50/20 OfficialJournaloftheEuropeanCommunities 25.2.92
—thenetdelta(ordelta-based )equivalentofthetotalbookofforeigncurrencyoptions,
—themarketvalueofother(i.e.non-foreign currency)options,
—anypositionwhichafirmhasdeliberately takeninordertohedgeagainsttheadverseeffectofthe
exchangerateonitscapitalratiomaybeexcludedfromthecalculation ofnetopencurrency
positions .Suchpositionsshouldbeofanon-trading orstructuralnatureandtheirexclusion ,and
anyvariationofthetermsoftheirexclusion ,shallrequiretheconsentofthecompetent authorities .
Thesametreatmentsubjecttothesameconditions asabovemaybeappliedtopositionswhicha
firmhaswhichrelatetoitemsthatarealreadydeductedinthecalculation ofownfunds.
4.Second,netshortandlongpositionsineachcurrencyotherthanthereportingcurrencyshallbe
convertedatspotratesintothereportingcurrency .Theyshallthenbesummedseparatelytoformthe
totalofthenetshortpositionsandthetotalofthenetlongpositionsrespectively .Thehigherofthese
twototalsshallbethefirm'soverallnetforeign-exchange position .
5.Netpositionsincomposite currencies maybebrokendownintothecomponent currenciesaccordingto
thequotasinforce.
ANNEX IV
OTHER RISKS
Investment firmsshallberequiredtoholdownfundsequivalent toonequarteroftheirpreviousyear's
fixedoverheads .Thecompetent authorities mayadjustthisrequirement intheeventofamaterialchange
tosuchafirm'sbusinesssincethepreviousyear.Whentheinvestment firmhasnotcompleted ayear's
business,includingonthedayitstartsup,therequirement shallbeaquarterofthefixedoverheads figure
projected initsbusinessplan,unlessanadjustment tothisplanisrequiredbytheauthorities .
ANNEX V
OWNFUNDS
1.Theownfundsofinvestment firmsandcreditinstitutions shallbedefinedinaccordance withDirective
89/299/EEC.
2.Notwithstanding paragraph 1,thecompetent authorities maypermitthosefirmswhichareobligedto
meettheownfundsrequirements thatarelaiddowninAnnexesI,II,IVandVI,oranycombination of
them,touseanalternative definitionofownfundswhenmeetingtheserequirements only.Nopartof
theownfundsthusprovidedmaybeusedsimultaneously tomeetotherownfundsrequirements .This
alternative definitionshallincludeitems(1)to(3)forcreditinstitutions ,anditems(1)to(3)minusitem
(4)forinvestment firms:
(1)ownfundsasdefinedinDirective89/299/EECexcludingforinvestment firmsonlyitems(12)and
(13)ofArticle2,paragraph 1ofDirective89/299/EEC;
(2)firms'nettradingbookprofitsorlossesnetofanyforeseeable chargesordividends,lessnetlosses
ontheirotherbusiness,providedthatnoneoftheseamountshavealreadybeenincludedinitem(1)
aboveunderitems(2)or(11)ofArticle2,paragraph 1ofDirective89/299/EEC;

25.2.92 OfficialJournaloftheEuropeanCommunities NoC50/21
(3)subordinated loancapitaland/ortheitemsreferredtoinparagraph 5below,subjecttothe
conditions setoutinparagraph 3to7below;
(4)illiquidassetsasdefinedinparagraph 7below.
3.Thesubordinated loancapitalreferredtoinitem(3)ofparagraph 2shallhaveanoriginalmaturityofat
leasttwoyears.Itshallbefullypaid-upandtheloanagreement shallnotincludeanyclauseproviding
that,inspecifiedcircumstances ,otherthanthewinding-up ofthefirm,thedebtwillbecomerepayable
beforetheagreedrepayment date,unlessthecompetent authorities approvetherepayment .Thissubor­
dinatedloancapitalmaynotberepaidifsuchrepayment wouldmeanthattheownfundsofthefirmin
questionwouldthenstandatbelow100°/oofthefirm'soverallrequirement .
4.Thesubordinated loancapitalreferredtoinitem(3)ofparagraph 2maynotexceedamaximumof
150%oftheoriginalownfundsusedtomeettherequirements laiddowninAnnexesI,II,IVandVI
underitem(1)ofparagraph 2above.
5.Thecompetent authorities maypermitfirmstosubstitutethesubordinated loancapitalreferredtoin
paragraphs 3and4withitems(3),(5),(6)and(8)ofparagraph 1ofArticle2ofDirective
89/299/EEC.
6.Thecompetent authorities maypermittheceilingsetforsubordinated loancapitalinparagraph 4to
exceed150%providedthatthetotalofsuchsubordinated loancapitalandtheitemsreferredtoin
paragraph 5doesnotexceed250°/ooftheoriginalownfundslefttomeettherequirements laiddown
inAnnexesI,II,IVandVIunderitem(1)ofparagraph 2.
7.Illiquidassetsinclude :
—fixedassets(excepttotheextentthatlandandbuildingsmaybeallowedtocountagainsttheloans
whichtheyaresecuring),
—physicalstocks,
—holdingsin,includingsubordinated claimson,otherfinancialinstitutions whichmaybeincludedin
theownfundsofsuchinstitutions .
Wheresharesinanotherfinancialinstitution areheldtemporarily forthepurposesofafinancial
assistanceoperationdesignedtoreorganize andsavethatinstitution ,thecompetent authorities may
waivethisprovision .Theymayalsowaiveitinrespectofthoseshareswhichareincludedinthe
investment firm'stradingbook,
—deficiencies insubsidiaries ,
—depositsmade,otherthanthosewhicharewithacreditinstitution ,localauthorityorregional
government andavailableforrepayment within90days,andalsoexcludingpaymentsinconnection
withmarginedfuturesoroptionscontracts ,
—loans,unlesstheyareduetoberepaidwithin90days,
—amountsspecifiedinparagraph 3(ii)ofAnnexII.

NoC50/22 OfficialJournaloftheEuropeanCommunities 25.2.92
ANNEX VI
LARGEEXPOSURES
1.Firmsshallmonitorandcontroltheirlargeexposures inaccordance withthemethodslaiddownin
Directive ../.../EEC(largeexposures (LED)).
2.Notwithstanding paragraph 1above,thosefirmswhichdonotcalculatethecapitalrequirements on
theirtradingbooksaccordingtoDirective89/647/EEC,shallmonitorandcontrolthelargeexposures
accordingtoparagraphs 3to5below,ratherthaninthemannersetoutinDirective ../.../EEC(LED).
3.Firsttheyshallcalculatetheirexposurestoindividualclients,orgroupsofconnectedclients,whicharise
ontheirtradingbook.Theseexposuresshallbecalculatedbysummingitems(i)to(iii)below:
(i)themarketvalueofallnetlongpositionsinfinancialinstruments ,issuedbytheclient,orgroupof
connected clients,inquestion ;
(ii)theexposuresontheircontractswiththeclient,orgroupofconnected clients,inOTCderivative
instruments ;theseexposures shallbecalculated bysummingthecurrentreplacement costand
potentialfuturecreditexposureofinterest-rate andexchange-rate contractsforfirmsapplying
methodIofAnnexIItoDirective89/647/EECinAnnexIIabove,andtheoriginalexposurein
suchcontractsforfirmsapplyingmethod2instead.Theexposureforequityoptionsandcovered
warrantsshallbecomputed byaddingtheirreplacement costto8%ofthemarketvalueofthe
equitiesunderlying them.
(iii)inthecaseoftheunderwriting ofadebtoranequityinstrument ,thefirm'sexposures shallbeits
netposition(whichiscalculated bydeductingthoseunderwriting positionswhicharesubscribed ,or
sub-underwritten ,bythirdparties)reducedbythereductionfactorssetoutinparagraph 37of
Annex 1.
4.Notwithstanding paragraph 3firmsmayexcludefromtheirtradingbookexposurestoclientsorgroups
ofconnected clientsanyoftheexposuresincludedin(i),(ii)and(iii)ofparagraph 3whicharealso
includedinpoints(a)to(b)ofparagraph 8ofArticle4ofDirective ../.../EEC(LED).
5.Theyshallthencalculatetheexposurestoindividualclientsorgroupsofconnected clientswhicharise
ontheirnon-trading bookbusiness .Inordertodoso,investment firmsshalltaketheexposurearising
fromassetswhicharedeductedfromtheirownfundsbyvirtueofparagraph 2ofAnnexV,tobezero.
Allfirms'exposures whichariseoutsidetheirtradingbook,shallbemonitored andcontrolled in
accordance withDirective (LED).
6.Ifthesumofafirm'stradingbook,andnon-trading book,exposurestoanindividualclient,orgroup
ofconnected clients,exceeds25%ofitstotalownfunds,thefirmshallmeetanadditional capital
requirement onthatpartoftheexcesswhichismatchedorexceeded ,bythetradingbookexposureto
theclient,orgroupofclients,inquestion .Inthecaseofthedebtsecurities ,andfixedinterestrate
derivatives ,components ,thisadditionwillbeequivalentto100%oftheweightedpositionascalculated
inparagraphs 13,and15or28,ofAnnexI;inthecaseoftheequitiescomponent itshallbe100%of
therequirement calculatedunderparagraphs 31to33ofAnnexI,whileinallothercasesitwillbe
100%oftherequirement onthepositionperse.Theseadditional capitalrequirements willbedoubled
whenthetotalexposureconcerned amountsto50%ormoreofthefirm'scapital.