Proposal for a Directive of the European Parliament and of the Council on the capital adequacy of investment firms and credit institutions (recast) {SEC(2004) 921}
Date: 2004-07-14
Institutions: European Commission
Subjects: credit guarantee, credit institution, financial instrument, financial solvency, management audit, share capital

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 14.7.2004 
COM(2004) 486 final 

2004/0155 (COD) 
2004/0159 (COD) 

Volume II 

Proposal for 

DIRECTIVES OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL  

Re-casting Directive 2000/12/EC of the European Parliament and of the Council of 20 
March 2000 relating to the taking up and pursuit of the business of credit institutions 
and Council Directive 93/6/EEC of 15 March 1993 on the capital adequacy of investment 
firms and credit institutions. 

(presented by the Commission) 

{SEC(2004) 921} 

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(cid:208) 93/6/EEC (adapted) 

2004/0159 (COD) 

Proposal for a 

COUNCIL DIRECTIVE ⌦ OF THE EUROPEAN PARLIAMENT AND OF THE 
COUNCIL ⌫ 

on the capital adequacy of investment firms and credit institutions 

(recast) 

⌦ THE  EUROPEAN  PARLIAMENT  AND  THE  COUNCIL  OF  THE  EUROPEAN 
UNION, ⌫ 

Having  regard  to  the  Treaty  establishing  the  European  Economic  Community,  and  in 
particular the first and third sentences of Article 57 ⌦ 47 ⌫ (2) thereof, 

Having regard to the proposal from the Commission1, 

In cooperation with the European Parliament2, 

Having regard to the opinion of the European Economic and Social Committee3, 

⌦ Having regard to the opinion of the Committee of the Regions4, ⌫ 

⌦ Acting in accordance with the procedure laid down in Article 251 of the Treaty5, ⌫ 

Whereas: 

(1) 

Council Directive 93/6/EEC of 15 March 1993 on the capital adequacy of investment 
firms  and  credit  institutions6  has  been  substantially  amended  several  times.  Since 
further amendments are to be made, it should be recast in the interests of clarity. 

(cid:216) new 

(2)  Whereas the main ⌦ One of the ⌫ objectives of Council Directive 93/22/EEC of 10 
May  1993  on  investment  services  in  the  securities  field 7  ⌦ 2004/39/EC of  the 

(cid:208) 93/6/EEC Recitals 1 (adapted) 

1 
2 
3 
4 
5 
6 
7 

OJ C […], […], p. […]. 
OJ C 
OJ C […], […], p. […]. 
OJ C […], […], p. […]. 
OJ C […], […], p. […]. 
OJ L No 141, 11.6.1993 p.1, as last amended by Directive 2004/xx/EC, OJ […] 
OJ L No 141, 11.06.1993 p. 0027, as last amended by Directive [2004/…/EC (OJ ………..)] 

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European  Parliament  and  of  the  Council  of  21  April  2004  on  markets  in  financial 
instruments  amending  Council  Directives  85/611/EEC  and  93/6/EEC  and  Directive 
2000/12/EC  of  20  March  2000  relating  to  the  taking  up  and  pursuit  of  credit 
institutions8  and  repealing  Council  Directive  93/22/EEC9  ⌫  is  to  allow  investment 
firms  authorized  by  the  competent  authorities  of  their  home  Member  States  and 
supervised by the same authorities to establish branches and provide services freely in 
other  Member  States;.  whereas  tThat  Directive  accordingly  provides  for  the 
coordination  of  the  rules  governing  the  authorizsation  and  pursuit  of  the  business  of 
investment firms;. 

(cid:208) 93/6/EEC Recital 2 (adapted) 

(3)  Whereas tThat Directive does not, however, establish common standards for the own 
funds of investment firms nor indeed does it establish the amounts of the initial capital 
of such firms; whereas ⌦ neither does ⌫ it does not establish a common framework 
for monitoring the risks incurred by the same firms;. whereas it refers, in several of its 
provisions, to another Community initiative, the objective of which would be precisely 
to adopt coordinated measures in those fields; 

(cid:208) 93/6/EC Recital 3 (adapted) 

(4)  Whereas the approach that has been adopted is ⌦ It is appropriate ⌫ to effect only 
the essential harmonization harmonisation that is necessary and sufficient to secure the 
mutual  recognition  of  authorization  authorisation  and  of  prudential  supervision 
systems; whereas the adoption of ⌦ In order to achieve mutual recognition within the 
framework of the internal financial market, ⌫ measures ⌦ should be laid down ⌫ 
to coordinate the definition of the own funds of investment firms, the establishment of 
the amounts of their initial capital and the establishment of a common framework for 
monitoring  the  risks  incurred  by  investment  firms  are  essential  aspects  of  the 
harmonization  necessary  for  the  achievement  of  mutual  recognition  within  the 
framework of the internal financial market;. 

(cid:216) new 

(5) 

Since  the  objective  of  the  proposed  action  cannot  be  sufficiently  achieved  by  the 
Member States and can, therefore, by reason of the scale and the effects of the action, 
be  better  achieved  at  Community  level,  the  Community  may  adopt  measures,  in 
accordance with the principle of subsidiarity as  set  out in Article 5 of the Treaty. In 
accordance  with  the  principle  of  proportionality,  as  set  out  in  that  Article,  this 
Directive confines itself to the minimum required in order to achieve those objectives 
and does not go beyond what is necessary for that purpose. 

(6)  Whereas iIt is appropriate to establish different amounts of initial capital depending on 

the range of activities that investment firms are authorized to undertake;. 

(cid:208) 93/6/EEC Recital 4 

8 
9 

OJ No 126, 26.5.2000, p.1 
OJ L No 145, 30.04.2004, p. 1 

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(7)  Whereas  Existing  investment  firms  should  be  permitted,  under  certain  conditions,  to 
continue their business even if they do not comply with the minimum amount of initial 
capital fixed for new ⌦ investment ⌫ firms;. 

(cid:208) 93/6/EC Recital 5 (adapted) 

(8)  Whereas theMember  States may ⌦ should ⌫ also ⌦ be able to ⌫ establish  rules 

stricter than those provided for in this Directive;. 

(cid:208) 93/6/EEC Recital 6 (adapted) 

Whereas  this  Directive  forms  part  of  the  wider  international  effort  to  bring  about 
approximation of the rules in force regarding the supervision of investment firms and credit 
institutions (hereinafter referred to collectively as «institutions»); 

(cid:208) 93/6/EC Recital 7 (adapted) 

(9) 

The smooth operation of the internal market requires not only legal rules but also close 
and  regular  cooperation  and  significantly  enhanced  convergence  of  regulatory  and 
supervisory practices between the competent authorities of the Member States. 

(cid:216) new 

Whereas  common  basic  standards  for  the  own  funds  of  institutions  are  a  key  feature  in  an 
internal  market  in  the  investment  services  sector,  since  own  funds  serve  to  ensure  the 
continuity of institutions and to protect investors; 

(cid:208) 93/6/EEC Recital 8 (adapted) 

(10)  Since investment firms face in respect of their trading book business the same risks as 
credit  institutions,  it  is  appropriate  for  the  pertinent  provisions  of  Directive 
2000/12/EC to apply equally to investment firms. 

(cid:216) new 

(cid:208) 93/6/EEC Recital 9 (adapted) 
(cid:214) new 

(11)  Whereas  in  a  common  financial  market,  institutions,  whether  they  are  (cid:214) The  own 
funds  of   investment  firms  or  credit  institutions,  (cid:214) (hereinafter  referred  to 
collectively as «institutions») can serve to absorb losses which are not matched by a 
sufficient  volume  of  profits,  to  ensure  the  continuity  of  institutions  and  to  protect 
investors.  The  own  funds  also  serve  as  an  important  yardstick  for  the  competent 
authorities, in particular for the assessment of the solvency of institutions and for other 
prudential  purposes.  Furthermore,  institutions,  whether  they  are  investment  firms  or 
credit  institutions,  in  the  internal  market   engage  in  direct  competition  with  one 
⌦ each ⌫  another.  (cid:214) Therefore,  in  order  to  strengthen  the  Community  financial 

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system and to prevent distortions of competition, it is appropriate to lay down common 
basic standards for own funds.  

Whereas it is therefore desirable to achieve equality in the treatment of credit institutions and 
investment firms; 

(cid:208) 93/6/EC Recital 10 (adapted) 

(12)  For  these  purposes,  it  is  appropriate  for  the  definition  of  own  funds  laid  down  in 
Directive  2000/12/EC  to  serve  as  a  basis  and  to  provide  for  supplementary  specific 
rules  which  take  into  account  the  different  scope  of  market  risk  related  capital 
requirements. 

(cid:216) new 

(13)  Whereas,  aAs  regards  credit  institutions,  common  standards  are ⌦ have ⌫  already 
⌦ been ⌫  established  for  the  supervision  and  monitoring  of  ⌦ different  types 
of ⌫  credit  risks  in  Council  Directive  89/647/EEC  of  18  December  1989  on  a 
solvency ratio for credit institutions10 ⌦by Directive 2000/12/EC ⌫;. 

(cid:208) 93/6/EEC Recital 11 (adapted) 

(14) 

In that respect, the provisions on minimum capital requirements should be considered 
in  conjunction  with  other  specific  instruments  also  harmonising  the  fundamental 
techniques of the supervision of institutions. 

(cid:216) new 

(15)  Whereas  iIt  is  necessary  to  develop  common  standards  for  market  risks  incurred  by 
credit institutions and provide a complementary framework for the supervision of the 
risks incurred by institutions, in particular market risks, and more especially position 
risks, counterparty/settlement risks and foreign-exchange risks;. 

(cid:208) 93/6/EEC Recital 12 

(16)  Whereas  iIt  is  necessary  to  introduce  ⌦ provide  for ⌫  the  concept  of  a  «trading 
book»  comprising  positions  in  securities  and  other  financial  instruments  which  are 
held for trading purposes and are subject mainly to market risks and exposures relating 
to certain financial services provided to customers;. 

(cid:208) 93/6/EC Recital 13 (adapted) 

10 

OJ No L 386, 30. 12. 1989, p. 14. Directive as amended by Directive 92/30/EEC (OJ No L 110, 28. 4. 
1992, p. 52). 

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(cid:208) 93/6/EEC Recital 14 (adapted) 

(17)  Whereas it is desirable that ⌦ With a view to reduce the administrative burden for ⌫ 
institutions with negligible trading-book business, in both absolute and relative terms, 
⌦ such 
to  apply  Directive  89/647/EEC 
⌦ [2000/12/EC] ⌫ , rather than the requirements imposed in Annexes I and II to this 
Directive;. 

should  be  able 

institutions ⌫ 

(18)  Whereas  It  is  important  that  monitoring  of  settlement/delivery  risks  should  take 
account  of  the  existence  of  systems  offering  adequate  protection  that  reduces 
⌦ reducing ⌫ that risk;. 

(cid:208) 93/6/EC Recital 15 (adapted) 

(cid:208) 93/6/EEC Recital 16 (adapted) 

(19)  Whereas,  in  any  case,  institutions  must ⌦ should ⌫  comply  with  this  Directive  as 
regards the coverage of the foreign-exchange risks on their overall business; ⌦ . ⌫ 
whereas  lLower  capital  requirements  should  be  imposed  for  positions  in  closely 
correlated  currencies,  whether  statistically  confirmed  or  arising  out  of  binding 
intergovernmental  agreements,  with  a  view  in  particular  to  the  creation  of  the 
European Monetary Union;. 

(cid:208) 93/6/EC Recital 17 (adapted) 

(20)  Whereas  tThe  existence,  in  all  institutions,  of  internal  systems  for  monitoring  and 
controlling  interest-rate  risks  on  all  of  their  business  ⌦ of  institutions ⌫  is  a 
particularly  important  way  of  minimizing  minimising  such  risks;  ⌦ . ⌫  whereas, 
cConsequently, such systems must be subject to overview ⌦ should be supervised ⌫ 
by the competent authorities;. 

(cid:208) 93/6/EEC Recital 18 (adapted) 

(21)  Whereas Council Directive 92/121/EEC of 21 December 1992 on the monitoring and 
control of large exposures of credit institutions11 ⌦ Since Directive [2000/12/EC] ⌫ 
is  not  aimed  at  establishing  ⌦ does  not  establish ⌫  common  rules  for  monitoring 
⌦ and  control  of ⌫  large  exposures  in  activities  which  are  principally  subject  to 
market risks ⌦ , it is therefore appropriate to provide for such rules ⌫ ; whereas that 
Directive  makes  reference  to  another  Community  initiative  intended  to  adopt  the 
requisite coordination of methods in that field;. 

Whereas  it  is  necessary  to  adopt  common  rules  for  the  monitoring  and  control  of  large 
exposures incurred by investment firms; 

(cid:208) 93/6/EEC Recital 19 (adapted) 

11 

OJ No L 29, 5. 2. 1993, p. 1. 

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(22)  Operational risk is a significant risk faced by institutions requiring coverage by own 
funds.  It  is  essential  to  take  account  of  the  diversity  of  institutions  in  the  EU  by 
providing alternative approaches. 

(cid:216) new 

(cid:208) 93/6/EEC Recitals 20 to 22 
(adapted) 

Whereas the own funds of credit institutions have already been defined in Council Directive 
89/299/EEC of 17 April 1989 on the own funds of credit institutions 12 ; 

Whereas the basis for the definition of the own funds of institutions should be that definition; 

Whereas, however, there are reasons why for the purposes of this Directive the definition of 
the own funds of institutions may differ from that in the aforementioned Directive in order to 
take account of the particular characteristics of the activities carried on by those institutions 
which mainly involve market risks; 

(cid:208) 93/6/EEC Recital 23 (adapted) 

(23)  Whereas  Council  Directive  92/30/EEC  of  6  April  1992  on  the  supervision  of  credit 
institutions on a consolidated basis13⌦ Directive [2000/12/EC] ⌫ states the principle 
of  consolidation;  ⌦ . ⌫  whereas  iIt  does  not  establish  common  rules  for  the 
consolidation  of  financial  institutions  which  are  involved  in  activities  principally 
subject  to  market  risks;.  whereas  that  Directive  makes  reference  to  another 
Community initiative intended to adopt coordinated measures in that field; 

(cid:216) new 

(24) 

In order to ensure adequate solvency of institutions within a group it is essential that 
the  minimum  capital  requirements  apply  on  the  basis  of  the  consolidated  financial 
situation of the group. In order to ensure that own funds are appropriately distributed 
within  the  group  and  available  to  protect  investments  where  needed,  the  minimum 
capital requirements should apply to individual institutions within a group, unless this 
objective can be effectively otherwise achieved. 

(cid:208) 93/6/EEC Recital 24 (adapted) 

(25)  Whereas  Directive  92/30/EEC ⌦ [2000/12/EC] ⌫  does  not  apply  to  groups  which 
include  one  or  more  investment  firms  but  no  credit  institutions;.  whereas  it  was, 
however, felt desirable to provide aA common framework for the introduction of the 
supervision  of  investment  firms  on  a  consolidated  basis  ⌦ should  therefore  be 
provided for ⌫ ;. 

12 

13 

OJ No L 124, 5. 5. 1989, p. 16. Directive as last amended by Directive 92/30/EEC (OJ No L 110, 24. 9. 
1992, p. 52). 
OJ No L 110, 28. 4. 1992, p. 52. 

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(cid:216) new 

(26) 

Institutions  should  ensure  that  they  have  internal  capital  which,  having  regard  to  the 
risks  to  which  they  are  or  might  be  exposed,  is  adequate  in  quantity,  quality  and 
distribution. Accordingly, institutions should have strategies and processes in place for 
assessing and maintaining the adequacy of their internal capital. 

(27)  Competent  authorities  should  evaluate  the  adequacy  of  own  funds  of  institutions, 

having regard to the risks to which the latter are exposed. 

(28) 

In order for the internal market to operate effectively it is essential that there should be 
significantly  enhanced  convergence  in  implementation  and  application  of  the 
provisions of harmonised Community legislation. 

(29)  For  the  same  reason  and  to  ensure  that  Community  institutions  which  are  active  in 
several Member States are not disproportionately burdened as a result of the continued 
responsibilities of individual Member State competent authorities for authorisation and 
supervision, it is essential to significantly enhance the cooperation between competent 
authorities.  In  this  context  the  role  of  the  consolidated  supervisor  should  be 
strengthened. 

(30) 

In  order  for  the  internal  market  to  operate  with  increasing  effectiveness  and  for 
citizens  of  the  Community  to  be  afforded  adequate  levels  of  transparency  it  is 
necessary that competent authorities disclose publicly and in a way which allows for 
meaningful  comparison  the  manner  in  which  the  requirements  of  this  Directive  are 
implemented. 

(31) 

In  order  to  strengthen  market  discipline  and  stimulate  institutions  to  improve  their 
market strategy, risk control and internal management organisation, appropriate public 
disclosures by institutions should be provided for. 

(cid:208) 93/6/EEC Recital 25 (adapted) 
(cid:214) new 

(32)  Whereas  technical  adaptations  to  the  detailed  rules  laid  down  in  this  Directive  may 
from time to time be necessary to take account of new developments in the investment 
services field; whereas the Commission will accordingly propose such adaptations as 
are  necessary  (cid:214) The  measures  necessary  for  the  implementation  of  this  Directive 
should be adopted in accordance with Council Decision 1999/468/EC of 28 June 1999 
laying down the procedures for the exercise of implementing powers conferred on the 
Commission14. ; 

Whereas  the  Council  should,  at  a  later  stage,  adopt  provision  for  the  adaptation  of  this 
Directive to technical progress in accordance with Council Decision 87/373/EEC of 13 July 
1987 laying down the procedures for the exercise of implementing powers conferred on the 

(cid:208) 93/6/EEC Recital 26 

14 

OJ L 184, 17.7.1999, p. 23. 

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Commission15;  whereas  meanwhile  the  Council  itself,  on  a  proposal  from  the  Commission, 
should carry out such adaptations; 

Whereas provision should be made for the review of this Directive within three years of the 
date of its application in the light of experience, developments on financial markets and work 
in  international  fora  of  regulatory  authorities;  whereas  that  review  should  also  include  the 
possible review of the list of areas that may be subject to technical adjustment; 

(cid:208) 93/6/EEC Recital 27 (adapted) 

Whereas this Directive and Directive 93/22/EEC on investment services in the securities field 
are  so  closely  interrelated  that  their  entry  into  force  on  different  dates  could  lead  to  the 
distortion of competition; 

(cid:208) 93/6/EEC Recital 28 

(cid:216) new 

(33) 

In  order  to  avoid  disruption  to  markets  and  to  ensure  continuity  in  overall  levels  of 
own funds, it is appropriate to provide for specific transitional arrangements. 

(34)  This Directive respects the fundamental rights and observes the principles recognised 
in particular by the Charter of Fundamental Rights of the European Union as general 
principles of Community law. 

(35)  The obligation to transpose this Directive into national law should be confined to those 
provisions  which  represent  a  substantive  change  as  compared  with  the  earlier 
Directives.  The  obligation  to  transpose  the  provisions  which  are  unchanged  arises 
under the earlier Directives. 

(36)  This  Directive  should  be  without  prejudice  to  the  obligations  of  the  Member  States 
relating to the time-limits for transposition into national law of the Directives set out in 
Annex VIII, Part B. 

15 

OJ No L 197, 18. 7. 1987, p. 33. 

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HASHAVE ADOPTED THIS DIRECTIVE: 

⌦ CHAPTER I ⌫ 

(cid:208) 93/6/EEC (adapted) 

⌦ Subject matter, scope and definitions ⌫ 

⌦ SECTION 1 ⌫ 

⌦ SUBJECT MATTER AND SCOPE ⌫ 

(cid:208) 93/6/EEC (adapted) 

Article 1 

1.  ⌦ This directive lays down the capital adequacy requirements applying to investment 
firms  and  credit  institutions,  the  rules  for  their  calculation  and  the  rules  for  their  prudential 
supervision. ⌫  Member  States  shall  apply  the  requirements  of  this  Directive  to  investment 
firms and credit institutions as defined in Article 2. 

A  Member  State  may  impose  additional  or  more  stringent  requirements  on  the 

2. 
investment firms and credit institutions that it has authorizsed. 

(cid:216) new 

Article 2 

Subject to Articles 18, 20, 28 to 32, 34 and 39 of this Directive, Articles 68 to 73 of 

1. 
Directive [2000/12/EC] shall apply mutatis mutandis to investment firms. 

In addition, Articles 71 to 73 of Directive [2000/12/EC] shall apply in the following 
situations: 

(a) 

an investment firm has as a parent a parent credit institution in a Member State;  

(b) 

a credit institution has as a parent a parent investment firm in a Member State. 

Where a financial holding company has as subsidiary both a credit institution and an 
investment firm, requirements on the basis of the consolidated financial situation of 
the financial holding company shall apply to the credit institution. 

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(cid:208) 93/6/EEC Art 7 (1) and (2) 
(adapted) 

Article 7 

General Principles 

The capital requirements imposed in Articles 4 and 5 for institutions which are neither 

1. 
parent undertakings nor subsidiaries of such undertakings shall be applied on a solo basis. 

2. 

– 

The requirements imposed in Articles 4 and 5 for: 

any  institution  which  has  a  credit  institution  within  the  meaning  of  Directive 
92/30/EEC,  an  investment  firm  or  another  financial  institution  as  a  subsidiary  or 
which holds a participation in such an entity, and 

– 

any institution the parent undertaking of which is a financial holding company 

shall  be  applied  on  a  consolidated  basis  in  accordance  with  the  methods  laid  down  in  the 
abovementioned Directive and in paragraphs 7 to 14 of this Article. 

(cid:208) 93/6/EEC Art. 7 (3) (adapted) 
(cid:206)1 2004/xx/EC Art. 1 
(cid:214) new 

When  a  group  covered  by  paragraph  2  ⌦ paragraph  1⌫does  not  include  a  credit 
2. 
institution,  Directive  92/30/EEC  ⌦ [2000/12/EC] ⌫  shall  apply,  subject  to  the  following 
adaptations: 

– 

– 

– 

– 

16 

«  financial  holding  company  »  shall  means  a  financial  institution,  the  subsidiary 
undertakings  of  which  are  either  exclusively  or  mainly  investment  firms  or  other 
financial institutions, at least one of which is an investment firm, and which is not a 
mixed financial holding company within the meaning of Directive 2002/87/EC of the 
European Parliament and of the Council of 16 December 2002 on the supplementary 
supervision  of  credit  institutions,  insurance  undertakings  and  investment  firms  in  a 
financial conglomerate16, 

«mixed-activity  holding  company  »  shall  means  a  parent  undertaking,  other  than  a 
financial  holding  company  or  an  investment  firm  or  a  mixed  financial  holding 
company  within  the  meaning  of  Directive  2002/87/EC,  the  subsidiaries  of  which 
include at least one investment firm, 

competent  authorities  shall  means 

- 
empowered by law or regulation to supervise investment firms 

the  national  authorities  which  are 

the second subparagraph of Article 3 (5) of Directive 92/30/EEC shall not apply, 

OJ L 35, 11.2.2003, p.1 

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(cid:214) (a) every  reference  to  credit  institutions  shall  be  construed  as  a  reference  to 

investment firms;  

(b) 

(c) 

in  Articles  4  ⌦ 125 ⌫  (1)  and  (2)  and  7  ⌦ 140  (2) ⌫  (5)  of  Directive 
92/30/EEC  ⌦ [2000/12/EC] ⌫ 
articles 
each 
of ⌫ Directive 77/780/EEC ⌦ [2000/12/EC] ⌫ shall be ⌦ construed as ⌫ 
replaced by a reference to Directive 93/22/EEC ⌦ 2004/39/EC ⌫ ; 

to ⌦ other 

reference 

for  the  purpose  of  Article  3  (9)  and  8  ⌦ 39(3) ⌫  of  Directive  92/30/EEC 
⌦ [2000/12/EC] ⌫ 
the  (cid:206)1 European  Banking 
Committee   shall  be  ⌦ construed  as ⌫  substituted  by  references  to  the 
Council and the Commission; 

references 

the 

to 

(d)  ⌦ by derogation to Article 140(1) of Directive [2000/12/EC], where a group 
does  not  include  a  credit  institution, ⌫  the  first  sentence  of  ⌦ that  ⌫ 
Article 7  shall  be  replaced  by  the  following:  «Where  an  investment  firm,  a 
financial  holding  company  or  a  mixed-activity holding company  controls  one 
or more subsidiaries which are insurance companies, the competent authorities 
and  the  authorities  entrusted  with  the  public  task  of  supervising  insurance 
undertakings shall cooperate closely». 

4. The competent authorities required or mandated to exercise supervision of groups covered 
by paragraph 3 on a consolidated basis may, pending further coordination on the supervision 
of  such  groups  on  a  consolidated  basis  and  where  the  circumstances  justify  it,  waive  that 
obligation provided that each investment firm in such a group: 

(cid:208) 93/6/EEC Art 7 (4) 

(i) 

(ii) 

(iii) 

uses the definition of own funds given in paragraph 9 of Annex V; 

meets the requirements imposed in Articles 4 and 5 on a solo basis; 

sets up systems to monitor and control the sources of capital and funding of all other 
financial institutions within the group. 

(cid:208) 93/6/EC Art. 7 (5) and (6) 
(adapted) 

5. The competent authorities shall require investment firms in a group which has been granted 
the  waiver  provided  for  in  paragraph  4  5  to  notify  them  of  those  the  risks  including  those 
associated  with  the  composition  and  sources  of  their  capital  and  funding,  which  could 
undermine  their  financial  positions,  including  those  associated  with  the  composition  and 
sources  of  their  capital  and  funding.  If  the  competent  authorities  then  consider  that  the 
financial  positions  of  those  investment  firms  is  not  adequately  protected,  they  shall  require 
them to take measures including, if necessary, limitations on the transfer of capital from such 
firms to group entities. 

6.  Where  the  competent  authorities  waive  the  obligation  of  supervision  on  a  consolidated 
basis provided for in paragraph 4 5 they shall take other appropriate measures to monitor the 
risks, namely large exposures, of the whole group, including any undertakings not located in a 
Member State. 

EN 

12 

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(cid:208) 93/6/EEC (adapted) 

⌦ SECTION 2⌫ 

DEFINITIONS 

(cid:208) 93/6/EEC Art. 2 (1) (adapted) 
(cid:214) new 

Article 3 

1. 

For the purposes of this Directive (cid:214) the following definitions shall apply:  

(a)1.  credit institutions shall mean ⌦ means credit institutions as defined in Article 
4(1) of Directive [2000/12/EC]; ⌫; all institutions that satisfy the definition in 
the first indent of Article 1 of the First Council Directive (77/780/EEC) of 12 
December  1977  on  the  coordination  of  laws,  regulations  and  administrative 
provisions  relating  to  the  taking  up  and  pursuit  of  the  business  of  credit 
institutions17  which  are  subject  to  the  requirements  imposed  by  Directive 
89/647/EEC; 

(cid:208) 2004/39/EC Art. 67.2 (adapted) 
(cid:214) new 

(b) 

investment  firms  shall  mean  ⌦  means ⌫  all  institutions  that  satisfy  the 
definition  ⌦ as  defined  in  Article  4(1)  of  Directive  2004/39/EC  ⌫  of  the 
European  Parliament  and  of  the  Council  of  21  April  2004  on  markets  in 
financial  instruments,  which  are  subject  to  the  requirements  imposed  by  the 
same ⌦ that ⌫ Directive, excluding: 

(a)(i) credit institutions; 

(b)(ii)  local firms as defined in 20 ⌦ point (p) of paragraph 1 of this Article; 

⌫, and 

(c)(iii)  firms  which  (cid:214) are   only  (cid:214) authorised  to  provide  the  service  of 
investment  advice  and/or   receive  and  transmit  orders  from  investors 
without  in  both  cases  holding  money  or  securities  belonging  to  their 
clients and which for that reason may not at any time place themselves in 
debit with their clients; 

17 

OJ No L 322, 17. 12. 1977, p. 30. Directive as amended by Directive 89/646/EEC (OJ No L 386, 30. 
12. 1989, p. 1). 

EN 

13 

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(cid:208) 93/6/EEC Art 2(3) to (4) 
(adapted (adapted) 

3. (c) institutions shall mean ⌦means ⌫ credit institutions and investment firms; 

4. (d) recognizzed  third-country  investment  firms  shall  mean  ⌦means ⌫  firms 

⌦ meeting the following conditions: ⌫ 

⌦ (i)  firms ⌫ which, if they were established within the Community, would 

be covered by the definition of investment firm; 

⌦ (ii)  firms ⌫ in 2 which are authoriszed in a third country; 

⌦ (iii) firms ⌫  and  which  are  subject  to  and  comply  with  prudential  rules 
considered  by  the  competent  authorities  as  at  least  as  stringent  as  those 
laid down in this Directive; 

(cid:208) 93/6/EEC (adapted) 
(cid:214) new 

5. (e) financial instruments shall mean ⌦means ⌫ the instruments listed in Section 
B of the Annex to Directive 93/22/EEC(cid:214) any contract that gives rise to both a 
financial  asset  of  one  party  and  a  financial  liability  or  equity  instrument  of 
another party ; 

6. 

the trading book of an institution shall consist of:  

(cid:208) 93/6/EEC Art. 2(6) (7) 

(a) 

(b) 

its proprietary positions in financial instruments, commodities and commodity 
derivatives  which  are  held  for  resale  and/or  which  are  taken  on  by  the 
institution with the intention of benefiting in the short term from actual and/or 
expected  differences  between  their  buying  and  selling  prices,  or  from  other 
price  or  interest-rate  variations,  and  positions  in  financial  instruments, 
commodities  and  commodity  derivatives,  arising  from  matched  principal 
broking,  or  positions  taken  in  order  to  hedge  other  elements  of  the  trading 
book; 

the  exposures  due  to  the  unsettled  transactions,  free  deliveries  and  over-the-
counter (OTC) derivative instruments referred to in paragraphs 1, 2, 3 and 5 of 
Annex  II,  the  exposures  due  to  repurchase  agreements  and  securities  and 
commodities lending which are based on securities or commodities included in 
the trading book as defined in (a) referred to in paragraph 4 of Annex II, those 
exposures due to reverse repurchase agreements and securities-borrowing and 
commodities-borrowing transactions described in the same paragraph, provided 
the competent authorities so approve, which meet either conditions (i), (ii), (iii) 
and (v) or conditions (iv) and (v) as follows: 

(i) 

the  exposures  are  marked  to  market daily  following  the  procedures  laid 
down in Annex II; 

EN 

14 

   EN 

 
 
 
 
(ii) 

the collateral is adjusted in order to take account of material changes in 
the value of the securities or commodities involved in the agreement or 
transaction  in  question,  according  to  a  rule  acceptable  to  the  competent 
authorities; 

(iii) 

the agreement or transaction provides for the claims of the institution to 
be automatically and immediately offset against the claims of its counter-
party in the event of the latter's defaulting; 

(iv) 

the agreement or transaction in question is an interprofessional one; 

(v) 

such  agreements  and  transactions  are  confined  to  their  accepted  and 
appropriate use and artificial transactions, especially those not of a short-
term nature, are excluded; and 

(c) 

those  exposures  in  the  form  of  fees,  commission,  interest,  dividends  and 
margin on exchange-traded derivatives which are directly related to the items 
included in the trading book referred to in paragraph 6 of Annex II. 

Particular items shall be included in or excluded from the trading book in accordance 
with objective procedures including, where appropriate, accounting standards in the 
institution  concerned,  such  procedures  and  their  consistent  implementation  being 
subject to review by the competent authorities; 

parent undertaking, subsidiary undertaking, and financial institution shall be defined 
in accordance with Article 1 of Directive 92/30/EEC; 

(cid:208) 93/6/EEC Art 2(7) (adapted) 

(cid:208) 93/6/EEC Art 2(8) (adapted) 

financial  holding  company  shall  mean  a  financial  institution  the  subsidiary 
undertakings of which are either exclusively or mainly credit institutions, investment 
firms or other financial institutions, one of which at least is a credit institution or an 
investment firm; 

(cid:216) new 

(f) 

parent investment firm in a Member State means an investment firm which has 
an institution or another financial institution as a subsidiary or which holds a 
participation  in  such  entities,  and  which  is  not  itself  a  subsidiary  of  another 
institution  authorised  in  the  same  Member  State,  or  of  a  financial  holding 
company  set  up  in  the  same  Member  State,  and  in  which  no  other  institution 
authorised in the same Member State holds a participation; 

(g)  EU parent investment firm means a parent investment firm in a Member State 
which is not a subsidiary of another institution authorised in any Member State, 
or of a financial holding company set up in any Member State, and in which no 
other institution authorised in any Member State holds a participation; 

7. 

8. 

EN 

15 

   EN 

 
 
 
 
 
(cid:208) 93/6/EEC Art 2 (9) (adapted) 

9. 

risk  weightings  shall  mean  the  degrees  of  credit  risk  applicable  to  the  relevant 
counter-parties under Directive 89/647/EEC. However assets constituting claims on 
and  other  exposures  to  investment  firms  or  recognized  third-country  investment 
firms and exposures incurred to recognized clearing houses and exchanges shall be 
assigned  the  same  weighting  as  that  assigned  where  the  relevant  counterparty  is  a 
credit institution; 

12. 

(cid:208) 98/33/EC Art. 3.1 (adapted) 

10(h) over-the-counter (OTC) derivative instruments shall mean ⌦means ⌫ the off 
balance  sheet  items  ⌦ falling  within  the  list  in  Annex  IV  to  Directive 
[2000/12/EC] other  than  those  items  to  which  an  exposure  value  of  zero  is 
attributed  under  paragraph  2  of  Annex  III  of  that  Directive;  ⌫  to  which 
according to the first subparagraph of Article 6(3) of Directive 89/647/EEC the 
methods set out in Annex II to the said Directive shall be applied; 

11.(i) regulated market shall mean ⌦means ⌫ a market that satisfies the definition 
given in Article 1 (13) of Directive 93/22/EEC; ⌦ as defined in Article 4(14) 
of Directive 2004/39/EC ⌫; 

(cid:208) 93/6/EEC (adapted) 

(cid:208) 93/6/EEC (adapted) 

qualifying  items  shall  mean  long  and  short  positions  in  the  assets  referred  to  in 
Article  6  (1)  (b)  of  Directive  89/647/EEC  and  in  debt  instruments  issued  by 
investment firms or by recognized third-country investment firms. It shall also mean 
long and short positions in debt instruments provided that such instruments meet the 
following conditions: such instruments must firstly be listed on at least one regulated 
market  in  a  Member  State  or  on  a  stock  exchange  in  a  third  country  provided  that 
that  exchange  is  recognized  by  the  competent  authorities  of  the  relevant  Member 
State; and secondly both be considered by the institution concerned to be sufficiently 
liquid and, because of the solvency of the issuer, be subject to a degree of default risk 
which is comparable to or lower than that of the assets referred to in Article 6 (1) (b) 
of Directive 89/647/EEC; the manner in which the instruments are assessed shall be 
subject to scrutiny by the competent authorities, which shall overturn the judgment of 
the institution if they consider that the instruments concerned are subject to too high 
a degree of default risk to be qualifying items. 

Notwithstanding  the  foregoing  and  pending  further  coordination,  the  competent 
authorities  shall  have  the  discretion  to  recognize  as  qualifying  items  instruments 
which  are  sufficiently  liquid  and  which,  because  of  the  solvency  of  the  issuer,  are 
subject to a degree of default risk which is comparable to or lower than that of the 
assets  referred  to  in  Article  6  (1)  (b)  of  Directive  89/647/EEC.  The  default  risk 
associated with such instruments must have been evaluated at such a level by at least 
two  credit-rating  agencies  recognized  by  the  competent  authorities  or  by  only  one 

EN 

16 

   EN 

 
 
 
 
 
 
such  credit-rating  agency  so  long  as  they  are  not  rated  below  such  a  level  by  any 
other credit-rating agency recognized by the competent authorities. 

The  competent  authorities  may,  however,  waive  the  condition  imposed  in  the 
preceding  sentence  if  they  judge  it  inappropriate  in  the  light  of,  for  example,  the 
characteristics  of  the  market,  the  issuer,  the  issue,  or  some  combination  of  those 
characteristics. 

Furthermore,  the  competent  authorities  shall  require  the  institutions  to  apply  the 
maximum  weighting  shown  in  Table  1  in  paragraph  14  of  Annex  I  to  instruments 
which  show  a  particular  risk  because  of  the  insufficient  solvency  of  the  issuer  or 
liquidity. 

The competent authorities of each Member State shall regularly provide the Council 
and the Commission with information concerning the methods used to evaluate the 
qualifying items, in particular the methods used to assess the degree of liquidity of 
the issue and the solvency of the issuer; 

13. 

central government items shall mean long and short positions in the assets referred to 
in Article 6 (1) (a) of Directive 89/647/EEC and those assigned a weighting of 0 % in 
Article 7 of the same Directive; 

14.(j) convertible  shall  mean  ⌦means ⌫  a  security  which,  at  the  option  of  the 

holder, may be exchanged for another security, usually the equity of the issue; 

(cid:208) 93/6/EEC Art 2 (14) (adapted) 

(cid:208) 98/31/EC Art. 1.1(b) (adapted) 

15.(k)  «warrant» shall mean ⌦means ⌫ a security which gives the holder the right 
to purchase an underlying at a stipulated price until or at the warrants’ expiry 
date  ⌦ of  the  warrant and  which  ⌫  may  be  settled  by  the  delivery  of  the 
underlying itself or by cash settlement; 

16. (l) «stock financing» shall mean ⌦means ⌫ positions where physical stock has 
been sold forward and the cost of funding has been locked in until the date of 
the forward sale; 

(cid:208) 98/31/EC Art. 1.1(c) (adapted) 

17.(m) «repurchase agreement» and «reverse repurchase agreement» shall mean ⌦ 
mean ⌫  any  agreement  in  which  an  institution  or  its  counter-party  transfers 
securities  or  commodities or guaranteed  rights relating to title to securities or 
commodities  where  that  guarantee  is  issued  by  a  recognised  exchange  which 
holds  the  rights  to  the  securities  or  commodities  and  the  agreement  does  not 
allow an institution to transfer or pledge a particular security or commodity to 
more  than  one  counter-party  at  one  time,  subject  to  a  commitment  to 
repurchase  them  –  (or  substituted  securities  or  commodities  of  the  same 
description) - at a specified price on a future date specified, or to be specified, 
by  the  transferor,  being  a  repurchase  agreement  for  the  institution  selling  the 

EN 

17 

   EN 

 
 
 
 
 
 
 
securities  or  commodities  and  a  reverse  repurchase  agreement  for  the 
institution buying them; 

(cid:208) 93/6/EEC Art 2(17) 2nd 
paragraph 

A reverse repurchase agreement shall be considered an interprofessional transaction 
when the counter-party is subject to prudential coordination at Community level or is 
a  Zone  A  credit  institution  as  defined  in  Directive  89/647/EEC  or  is  a  recognized 
third-country investment firm or when the agreement is concluded with a recognized 
clearing house or exchange; 

(cid:208) 98/31/EC Art. 1.1(d) (adapted) 

18.(n) «securities  or  commodities 

lending»  and  «securities  or  commodities 
borrowing» shall mean ⌦ mean ⌫ any transaction in which an institution or 
its  counter-party  transfers  securities  or  commodities  against  appropriate 
collateral  subject  to  a  commitment  that  the  borrower  will  return  equivalent 
securities or commodities at some future date or when requested to do so by the 
transferor,  that  transaction  being  securities  or  commodities  lending  for  the 
institution  transferring  the  securities  or  commodities  and  being  securities  or 
commodities borrowing for the institution to which they are transferred; 

(cid:208) 98/31/EC Art. 1.1(d) 

Securities  or  commodities  borrowing  shall  be  considered  an  interprofessional 
transaction  when  the  counter-party  is  subject  to  prudential  coordination  at 
Community  level  or  is  a  Zone  A  credit  institution  as  defined  in  Directive 
89/647/EEC or is a recognised third-country investment firm or when the transaction 
is concluded with a recognised clearing house or exchange; 

(cid:208) 93/6/EEC Art 2(19) (adapted) 

19.(o) clearing  member  shall  mean  ⌦means ⌫  a  member  of  the  exchange  or  the 
clearing  house  which  has  a  direct  contractual  relationship  with  the  central 
counterparty (market guarantor); non-clearing members must have their trades 
routed through a clearing member; 

(cid:208) 93/6/EEC Art 2(20) (adapted) 
(cid:214) new 

20.(p) local firm shall mean ⌦means ⌫ a firm dealing only for its on own account 
(cid:214) on  markets   in  a  financial-futures  or  options  exchange  (cid:214) or  other 
derivatives  and  on  cash  markets  for  the  sole  purpose  of  hedging  positions  on 
derivatives markets or which deals  for the accounts of or making a price to 
other members (cid:214) of those markets  the same exchange and (cid:214) which are  
guaranteed by a clearing members of the same exchange (cid:214) markets, where  
Rresponsibility for ensuring the performance of contracts entered into by such 
a  firms  must  be  ⌦ is ⌫  assumed  by  a  clearing  members  of  the  same 

EN 

18 

   EN 

 
 
 
 
 
 
 
 
exchange (cid:214) markets;  , and such contracts must be taken into account in the 
calculation of the clearing member's overall capital requirements so long as the 
local firm's positions are entirely separate from those of the clearing member; 

21.(q) delta  shall  mean  ⌦means ⌫  the  expected  change  in  an  option  price  as  a 
proportion  of  a  small  change  in  the  price  of  the  instrument  underlying  the 
option; 

(cid:208) 93/6/EEC Art 2(21) (adapted) 

22. 

for  the  purposes  of  paragraph  4  of  Annex  I,  long  position  shall  mean  a  position  in 
which  an  institution  has  fixed  the  interest  rate  it  will  receive  at  some  time  in  the 
future, and short position shall mean a position in which it has fixed the interest rate 
it will pay at some time in the future; 

(cid:208) 93/6/EEC Art 2(22) (adapted) 

23.(r)  own  funds  shall  mean  ⌦means ⌫  own  funds  as  defined  in  Directive 
89/299/EEC  ⌦ [2000/12/EC] ⌫.This  definition  may,  however,  be  amended 
in the circumstances described in Annex V; 

(cid:208) 93/6/EEC Art 2(23) (adapted) 

(cid:208) 93/6/EC Art. 2 (24) and (25) 
(adapted) 

24. 

initial capital shall mean items 1 and 2 of Article 2(1) of Directive 89/299/EEC; 

original own funds shall mean the sum of items 1, 2 and 3, less the sum of items 9, 10 

25 
and 11 of Article 2 (1) of Directive 89/299/EEC; 

26.(s) capital shall mean own funds;. 

(cid:208) 93/6/EEC Art 2 (26) 

27.  modified duration shall be calculated using the formula set out in paragraph 26 
of Annex I. 

(cid:208) 93/6/EEC Art 2(27) (adapted) 

(cid:216) new 

For  the  purposes  of  applying  supervision  on  a  consolidated  basis,  the  term 
investment firm shall include recognised third-country investment firms. 

For  the  purposes  of  point  (e)  of  the  first  subparagraph,  financial  instruments  shall 
include  both  primary  financial  instruments  or  cash  instruments,  and  derivative 
financial instruments the value of which is derived from the price of an underlying 
financial instrument or a rate or an index or the price of an underlying other item and 

EN 

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include as a minimum the instruments specified in Section C of Annex I of Directive 
2004/39/EC. 

(cid:208) 93/6/EEC Art 2 (7) and (8) 
(adapted) 

terms ⌫“parent 

2.  ⌦ The 
undertaking”,⌦ ”asset 
management  company” ⌫  and  “financial  institution”  shall  be  ⌦ cover  undertakings ⌫ 
defined  in  accordance  with  ⌦ as  such  in Article  4⌫  Article  1  of  Directive  92/30/EEC 
⌦[2000/12/EC] ⌫. 

undertaking”,“subsidiary 

⌦ The  terms ⌫  “financial  holding  company”, ⌦ “parent  financial  holding  company  in  a 
Member State”, “EU parent financial holding company” and “ancillary services undertaking” 
⌫  shall  mean  a  financial  institution  the  subsidiary  undertaking  of  which  are  either 
exclusively or mainly credit institutions, investment firms or other financial institutions, one 
of  which  at  least  is  a  credit  institution  or  an  investment  firm  ⌦ shall  cover  undertakings 
defined  as  such  in Article  4  of  Directive  [2000/12/EC],  save  that  every  reference  to  credit 
institutions shall be read as a reference to institutions. ⌫ 

For  the  purposes  of  applying  Directive  [2000/12/EC]  to  groups  covered  by  Article 

3. 
2(1), which do not include a credit institution, the following definitions shall apply: 

(cid:216) new 

(cid:208) 2002/87/EC Art. 26 (adapted) 

1.(a)  «financial  holding  company  »  means  a  financial  institution,  the  subsidiary 
undertakings  of  which  are  either  exclusively  or  mainly  investment  firms  or 
other  financial  institutions,  at  least  one  of  which  is  an  investment  firm,  and 
which  is  not  a  mixed  financial  holding  company  within  the  meaning  of 
Directive 2002/87/EC18 of the European Parliament and of the Council.; 

2. (b) «mixed-activity  holding  company  »  means  a  parent  undertaking,  other  than  a 
financial holding company or an investment firm or a mixed financial holding 
company  within  the  meaning  of  Directive  2002/87/EC,  the  subsidiaries  of 
which include at least one investment firm; 

3. (c) “competent authorities” means the national authorities which are empowered 

by law or regulation to supervise investment firms. 

18 

OJ L 35, 11.2.2003, p.1 

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(cid:208) 93/6/EEC (adapted) 

⌦ CHAPTER II ⌫ 

INITIAL CAPITAL 

(cid:208) 93/6/EEC Art 2(24) (adapted) 

Article 4 

1. Initial capital shall mean ⌦means points (a) and (b) ⌫ items 1 and 2 of Article ⌦ 57 ⌫ 
2 (1) of Directive 89/299/EEC ⌦[2000/12/EC]⌫. 

(cid:208) 93/6/EEC Art. 3(1) and (2) 
(adapted) 

Article 5 

Investment  firms  ⌦ that  do  not  deal  in  any  financial  instruments  for  their  own 
1. 
account  or  underwrite  issues  of  financial  instruments  on  a  firm  commitment  basis,  but ⌫ 
which  hold  clients'  money  and/or  securities  and  which  offer  one  or  more  of  the  following 
services, shall have initial capital of ECU ⌦ EUR ⌫ 125 000: 

(a) 

the reception and transmission of investors' orders for financial instruments; 

(b) 

the execution of investors' orders for financial instruments; 

(c) 

the  management  of 
instruments. 

individual  portfolios  of 

investments 

in  financial 

provided that they do not deal in any financial instruments for their own account or 
underwrite issues of financial instruments on a firm commitment basis. 

The holding of non-trading-book positions in financial instruments in order to invest 
own  funds  shall  not  be  considered  as  dealing  for  the  purposes  set  out  in  the  first 
paragraph or for the purposes of paragraph 2. 

2. 
The  competent  authorities  may,  however,  allow  an  investment  firm  which  executes 
investors'  orders  for  financial  instruments  to  hold  such  instruments  for  its  own  account  if 
⌦ the following conditions are met ⌫ : 

(a) 

(b) 

such  positions  arise  only  as  a  result  of  the  firm's  failure  to  match  investors' 
orders precisely; 

the total market value of all such positions is subject to a ceiling of 15 % of the 
firm's initial capital; 

EN 

21 

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(c) 

(d) 

the  firm meets the requirements imposed ⌦ laid down ⌫ in Articles 18, 20 
and 28; and 

such positions are incidental and provisional in nature and strictly limited to the 
time required to carry out the transaction in question. 

The holding of non-trading-book positions in financial instruments in order to invest 
own funds shall not be considered as dealing for the purposes set out in paragraph 1 
or for the purposes of paragraph 3. 

3.2  Member States may reduce the amount referred to in paragraph 1 to ECU ⌦ EUR ⌫ 
50000 where a firm is not authoriszed to hold clients' money or securities, to deal for its own 
account, or to underwrite issues on a firm commitment basis. 

3. All other investment firms shall have initial capital of ECU 730 000. 

(cid:208) 93/6/EEC Art 3 (3) (adapted) 

(cid:208) 2004/39/EC Art. 67(2) 
(adapted) 

Article 6 

4. The firms referred to in point (b) of Article 2(2)⌦ Local firms ⌫ shall have initial capital 
of  EUR  50  000  in  so  far  as  they  benefit  from  the  freedom  of  establishment  or  to  provide 
services ⌦ specified in ⌫ under Articles 31 or 32 of Directive 2004/39/EC. 

(cid:208) 2004/39/EC Article 67 (3) 
(adapted) 

Article 7 

Pending revision of Directive 93/6/EEC, theCoverage for the firms referred to in point (b)(iii) 
of Article 2 ⌦ 3 ⌫ (1) shall take one of the following forms: 

(a) 

(b) 

initial capital of EUR 50 000; 

professional indemnity insurance covering the whole territory of the Community or 
some  other  comparable  guarantee  against  liability  arising  from  professional 
negligence,  representing  at  least  EUR  1  000  000  applying  to  each  claim  and  in 
aggregate EUR 1 500 000 per year for all claims; 

(c) 

a  combination  of  initial  capital  and  professional  indemnity  insurance  in  a  form 
resulting in a level of coverage equivalent to that referred to in points (a) or (b). 

The  amounts  referred  to  in  the  first  subparagraph  shall  be  periodically  reviewed  by  the 
Commission in order to take account of changes in the European Index of Consumer Prices as 

EN 

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   EN 

 
 
 
 
published  by  Eurostat,  in  line  with  and  at  the  same  time  as  the  adjustments  made  under 
Article 4(7) of Directive 2002/92/EC of the European Parliament and of the Council19 (*). 

⌦ Article 8 ⌫ 

If  an  investment  firm  referred  to in  point (b)(iii)  of  Article  2 ⌦ 3 ⌫ (1) is  also registered 
under  Directive  2002/92/EC  it  shall  comply  with  Article  4(3)  of  that  Directive  and  have 
coverage in one of the following forms: 

(a) 

(b) 

initial capital of EUR 25 000; 

professional indemnity insurance covering the whole territory of the Community or 
some  other  comparable  guarantee  against  liability  arising  from  professional 
negligence,  representing  at  least  EUR  500  000  applying  to  each  claim  and  in 
aggregate EUR 750 000 per year for all claims; 

(c) 

a  combination  of  initial  capital  and  professional  indemnity  insurance  in  a  form 
resulting in a level of coverage equivalent to that referred to in points (a) or (b). 

(cid:208) 93/6/EEC Art 3(3) (adapted) 

Article 9 

All other investment firms shall have initial capital of ECU ⌦ EUR ⌫ 730 000. 

(cid:208) 93/6/EEC Art 3(5) to (8) 
(adapted) 

Article 10 

1.  ⌦ By derogation to Articles 5(1), 5(3), 6 and 9, ⌫ Notwithstanding paragraphs 1 to 
4,  Member  States  may  continue  the  authorisation  of  investment  firms  and  firms  covered  by 
⌦ Article 6 ⌫ paragraph 4 in existence before ⌦ 31 December 1995 ⌫ this Directive is 
applied  the  own  funds  of  which  are  less  than  the  initial  capital  levels  specified  for  them  in 
⌦ Articles 5(1), 5(3), 6 and 9 ⌫ paragraphs 1 to 4. 

The own funds of such firms shall not fall below the highest reference level calculated after 
the date of notification of this Directive ⌦ 1993/6/EEC ⌫. That reference level shall be the 
average  daily  level  of  own  funds  calculated  over  a  six-month  period  preceding  the  date  of 
calculation. It shall be calculated every six months in respect of the corresponding preceding 
period. 

If  control  of  a  firm  covered  by  paragraph  5⌦ 1 ⌫  is  taken  by  a  natural  or  legal 
2. 
person  other  than  the  person  who  controlled  it  previously,  the  own  funds  of  that  firm  must 
attain at least the level specified for it in ⌦ Articles 5(1), 5(3), 6 and 9 ⌫ paragraphs 1 to 4, 
except in the following situations: (i)- 
in  the  case  of  the  first  transfer  by  inheritance 

19 

OJ L 9, 15.1.2003, p. 3. 

EN 

23 

   EN 

 
 
 
                                                 
after  ⌦ 31  December  1995 ⌫  the  application  of  this  Directive,  subject  to  the  competent 
authorities' approval, for not more than 10 years after that transfer.; 

(ii) 

in the case of a change in the composition of a partnership, as long as at least one of 
the partners at the date of the application of this Directive remains in the partnership, 
for not more than 10 years after the date of the application of this Directive. 

3. 
In  certain  specific  circumstances,  and  with  the  consent  of  the  competent  authorities, 
however, in the event of a merger of two or more investment firms and/or firms covered by 
paragraph 4⌦ Article 6⌫, the own funds of the firm produced by the merger need not attain 
the  level  specified  in  paragraphs  1  to  4⌦ Articles  5(1),  5(3),  6  and  9 ⌫.  Nevertheless, 
during any period when the levels specified in paragraphs 1 to 4 ⌦ Articles 5(1), 5(3), 6 and 
9 ⌫ have not been attained, the own funds of the new firm may not fall below the merged 
firms' total own funds at the time of the merger. 

The own funds of investment firms and firms covered by paragraph 4⌦ Article 6 ⌫ 
4. 
may not fall below the level specified in paragraphs 1 to 5 and 7 ⌦ Articles 5(1), 5(3), 6, 9, 
10(1) and 10(3)⌫. 

If they do, however, the competent authorities may, where the circumstances justify it, allow 
such firms a limited period in which to rectify their situations or cease their activities. 

(cid:216) new 

CHAPTER III 

TRADING BOOK 

Article 11 

1. 
The trading book of an institution shall consist of all positions in financial instruments 
and  commodities  held  either  with  trading  intent  or  in  order  to  hedge  other  elements  of  the 
trading book, which must either be free of any restrictive covenants on their tradability or able 
to be hedged. 

Positions  held  with  trading  intent  are  those  held  intentionally  for  short-term  resale 
2. 
and/or  with  the  intention  of  benefiting  from  actual  or  expected  short-term  price  differences 
between  buying  and  selling  prices,  or  from  other  price  or  interest  rate  variations.  The  term 
“positions”  shall  include  proprietary  positions,  positions  arising  from  client  servicing  and 
market making. 

3. 
Trading intent shall be evidenced based on the strategies, policies and procedures set 
up by the institution to manage the position or portfolio in accordance with Annex VII Part A. 

Institutions shall establish and maintain systems and controls to manage their trading 

4. 
book, in accordance with Annex VII, Part B. 

EN 

24 

   EN 

 
 
Internal hedges may be included in the trading book, in which case Annex VII Part C 

5. 
shall apply. 

(cid:216) new 

CHAPTER IV 

OWN FUNDS 

(cid:208) 93/6/EEC Art. 2 (25) (adapted) 

Article 12 

Original own funds means the sum of items 1, 2 and ⌦ points (a) to (c) ⌫ , less the sum of 
items 9, 10 and 11 ⌦ points (i) to (k) ⌫ of Article 2 (1) ⌦ 57 ⌫ of Directive 89/299/EEC 
⌦ [2000/12/EC] ⌫. 

The Commission shall, by 1 January 2009 at the latest, submit an appropriate proposal to the 
European Parliament and to the Council for amendment of this Chapter. 

(cid:216) new 

(cid:208) 93/6/EEC Annex V first and 
second subparagraph (adapted) 
(cid:214) new 

Article 13 

(cid:214) Subject to paragraphs 2 to 5 of this Article, and Articles 14 to 17, Tthe own funds 
1. 
of investment firms and credit institutions shall be defined ⌦ determined ⌫ in accordance 
with Directive 89/299/EEC ⌦ [2000/12/EC] ⌫ . 

In addition, the first subparagraph applies to investment firms which do not have one 
of  the  legal  forms  referred  to  in  Article  1  (1)  of  the  Fourth  Council  Directive 
78/660/EEC. 

(cid:208) 93/6/EEC Annex V (1) 2nd 
subparagraph (2) to (5) (adapted) 
(cid:206)1 98/31/EC Art. 1.7 and Annex 
4(a) (b) 
(cid:214) new 

2.  (cid:206)1 Notwithstanding ⌦ By  derogation  to ⌫  paragraph  1,  the  competent  authorities 
may permit those institutions which are obliged to meet the capital own-funds requirements 
calculated in accordance with ⌦ Articles 21 and 28 to 32 and ⌫ laid down in Annexes I, II, 
III,  IV,  VI,  VII  and  VIII  ⌦ and  III  to  VI ⌫  to  use,  for  that  purpose  only,  an  alternative 

EN 

25 

   EN 

 
 
 
 
 
 
definition  when  meeting  those  requirements  only  ⌦ determination ⌫of  own  funds.  No 
part of the own funds used for that purpose thus provided may be used simultaneously to meet 
other capital own-funds requirements. 

This alternative definition ⌦ determination ⌫ shall be the sum of the items set out 
in points (a) to (c) below, minus the item set out in point (d) below, with include the 
following items (a), (b) and (c) less item (d), the deduction of that last item being left 
to the discretion of the competent authorities: 

(a) 

(b) 

own funds as defined in Directive 89/299/EEC ⌦ [2000/12/EC] ⌫ excluding 
only items (12) ⌦ points (l) to (p) ⌫ and (13) of Article 2 (1) ⌦ 57 ⌫ of 
that Directive for those investment firms which are required to deduct item (d) 
of this paragraph from the total of items (a), (b) and (c) of this paragraph; 

an  institution's  net  trading-book  profits  net  of  any  foreseeable  charges  or 
dividends,  less  net  losses  on  its  other  business  provided  that  none  of  those 
amounts has already been included in item (a) of this paragraph under the items 
set  out  in  paragraphs  (2)  or  (11)  ⌦ points  (b)  or  (k) ⌫  of  Article  2  (1)  of 
Directive 89/299/EEC ⌦ 57 of Directive [2000/12/EC] ⌫; 

(c) 

subordinated loan capital and/or the items referred to in paragraphs 5, subject 
to the conditions set out in paragraphs 3 to 7 ⌦ and 4 and Article 14 ⌫ ; 

(d) 

illiquid assets as defined ⌦ specified ⌫ in paragraph 8 ⌦ Article 15 ⌫ . 

The subordinated loan capital referred to in ⌦ point (c) ⌫ of paragraph 2 shall have 
3. 
an initial maturity of at least two years. It shall be fully paid up and the loan agreement shall 
not include any clause providing that in specified circumstances other than the winding up of 
the  institution  the  debt  will  become  repayable  before  the  agreed  repayment  date,  unless  the 
competent  authorities  approve  the  repayment.  Neither  the  principal  nor  the  interest  on  such 
subordinated loan capital may be repaid if such repayment would mean that the own funds of 
the  institution  in  question  would  then  amount  to  less  than  100 %  of  the  ⌦ that ⌫ 
institution's overall requirements. 

In addition, an institution shall notify the competent authorities of all repayments on 
such  subordinated  loan  capital  as  soon  as  its  own  funds  fall  below  120 %  of  its 
overall ⌦ capital ⌫ requirements. 

The subordinated loan capital referred to in ⌦ point (c) of ⌫ paragraph 2 may not 
4. 
exceed  a  maximum  of  150 %  of  the  original  own  funds  left  to  meet  the  requirements 
⌦ calculated in accordance with Articles 21 and 28 to 32 and⌫ laid down in Annexes I, II, 
III,  IV,  VI,  VII,  and  VIII ⌦ to  VI ⌫  and  may  approach  that  maximum  only  in  particular 
circumstances acceptable to the relevant authorities. 

5. 
The  competent  authorities  may  permit  institutions  to  replace  the  subordinated  loan 
capital referred to ⌦ in point (c) of paragraph 2 ⌫ in paragraphs 3 and 4 with items 3 and 5 
to  8  ⌦ points  (d)  to  (h) ⌫  of  Article  2  (1)  of  Directive  89/299/EEC  ⌦ 57  of  Directive 
[2000/12/EC] ⌫. 

EN 

26 

   EN 

 
(cid:208) 98/31/EC Annex .4(c) (adapted) 

Article 14 

1. 
The  competent  authorities  may  permit  investment  firms  to  exceed  the  ceiling  for 
subordinated loan capital ⌦ set out ⌫ prescribed in paragraph 4 ⌦ Article 13(4) ⌫ if they 
judge  it  prudentially  adequate  and  provided  that  the  total  of  such  subordinated  loan  capital 
and the items  referred to  in  paragraph 5 ⌦ Article 13(5) ⌫ does  not exceed 200 %  of  the 
original  own  funds  left  to  meet  the  requirements  calculated  in  accordance  with  imposed  in 
⌦ Articles 21, 28 to 32 and ⌫ Annexes I, II, III, IV, VI, VII and VIII ⌦ and III to VI ⌫ 
or 250 % of the same amount where investment firms deduct the item set out in point (d) of 
referred to in paragraph 2 ⌦ Article 13(2) ⌫ when calculating own funds. 

2. 
The competent authorities may permit the ceiling for subordinated loan capital set out 
prescribed in paragraph 4 ⌦ Article 13(4) ⌫ to be exceeded by a credit institution if they 
judge  it  prudentially  adequate  and  provided  that  the  total  of  such  subordinated  loan  capital 
and  items  (4)  to  (8)  ⌦ points  (d)  to  (h) ⌫  of  Article  35(2)  ⌦ 57 ⌫  of  Directive 
[2000/12/EC] referred to in paragraph 5 does not exceed 250 % of the original own funds left 
to  meet  the  requirements  calculated  in  accordance  with  imposed  in  Articles  ⌦ 28  to  32 
and ⌫ Annexes I, II, III, IV, V and VI ⌦ and III to VI ⌫. 

(cid:208) 93/6/EEC Annex V (8) 
(adapted) 

Article 15 

Illiquid assets ⌦ as referred to in point (d) of Article 12(2) shall include the following: ⌫ 

(a) 

tangible  fixed  assets,  (except  to  the  extent  that  land  and  buildings  may  be 
allowed to count against the loans which they are securing); 

(b)  holdings  in,  including  subordinated  claims  on,  credit  or  financial  institutions 
which  may  be  included  in  the  own  funds  of  ⌦ those ⌫  such  institutions, 
unless  they  have  been  deducted  under  items  (12)  ⌦ points  (l)  to  (p) ⌫  of 
Article 2 (1) ⌦ 57 ⌫ of Directive 89/299/EEC ⌦ [2000/12/EC] ⌫ or under 
Article 15(d) of this Annex ⌦ Directive ⌫ ; 

(c) 

holdings  and  other  investments,  in  undertakings  other  than  credit  institutions 
and other financial institutions, which are not readily marketable; 

(d)  deficiencies in subsidiaries; 

(e) 

deposits  made,  other  than  those  which  are  available  for  repayment  within  90 
days,  and  also  excluding  payments  in  connection  with  margined  futures  or 
options contracts; 

(f) 

loans and other amounts due, other than those due to be repaid within 90 days; 

EN 

27 

   EN 

 
 
 
(g)  physical  stocks,  unless  they  are  ⌦ already ⌫  subject  to  the  capital 
requirements imposed in Article 4 (2) and provided that such requirements are 
not less stringent than those imposed in Article 4 (1)(iii) ⌦ at least as stringent 
as those set out in Articles 18 to 20 ⌫ . 

(cid:208) 93/6/EEC Annex V(8) second 
indent, second subparagraph 
(adapted) 

⌦ For  the  purposes  of  point  (b),  w ⌫  Wwhere  shares  in  a  credit  or  financial 
institution  are  held  temporarily  for  the  purpose  of  a  financial  assistance  operation 
designed to reorganise and save that institution, the competent authorities may waive 
this provision. They may also waive it in respect of those shares which are included 
in the investment firm's trading book,. 

(cid:208) 93/6/EEC Annex V (9) 
(adapted) 

Article 16 

9. Those i Investment firms included in a group subject to ⌦ which has been granted ⌫ the 
waiver  provided  for  described  in  Article  7(4)  ⌦ 22 ⌫  shall  calculate  their  own  funds  in 
accordance  with  paragraphs  1  to  8  ⌦ Articles  13  to  15 ⌫  subject  to  the  following 
modifications: 

(a)(i) the  illiquid  assets  referred  to  in  paragraph  2⌦ point  (d) of  Article  13(2) ⌫ 

shall be deducted; 

(b)(ii) the exclusion referred to in paragraph 2 ⌦ point (a) of Article 12(2) ⌫ shall 
not cover those components of items 12 ⌦ points (l) to (p) ⌫ of Article 2 (1) 
⌦ 57 ⌫ of Directive 89/299/EEC ⌦ [2000/12/EC] ⌫ which an investment 
firm holds in respect of undertakings included in the scope of consolidation as 
defined in Article ⌦ 2 (1) ⌫ of this Directive; 

(c)(iii) the limits referred to in points (a) and (b) of Article 6 ⌦ 66 ⌫ (1)(a) and (b) 
of  Directive  89/299/EEC  ⌦ [2000/12/EC] ⌫  shall  be  calculated  with 
reference to the original own funds less those ⌦ the ⌫ components of items 
(12) ⌦ points (l) to (p) ⌫ of Article 2 (1) ⌦ 57 ⌫ of Directive 89/299/EEC 
⌦[2000/12/EC] ⌫ described in (ii) ⌦ referred to in point (b) ⌫ which are 
elements of the original own funds of the undertakings in question; 

(d)(iv) those ⌦ the ⌫ components of items (12) ⌦ points (l) to (p) ⌫ of Article 2 
(1)  ⌦ 57 ⌫  of  Directive  89/299/EEC  ⌦[2000/12/EC] ⌫  referred  to  in 
point  (c)  shall  be  deducted  from  the  original  own  funds  rather  than  from  the 
total of all items as laid down prescribed in point (c) of Article 6 ⌦ 66 ⌫(1) 
(c) of that same Directive for the purposes, in particular, of paragraphs 4 to 7 
⌦ Articles 13(4), 13(5) and 14 ⌫ of this Annex ⌦ Directive ⌫ . 

EN 

28 

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(cid:216) new 

Article 17 

1. 
Where  an  institution  calculates  risk-weighted  exposure  amounts  for  the  purposes  of 
Annex  II  in  accordance  with  the  provisions  of  Articles  84  to  89  of  Directive  [2000/12/EC], 
then  for  the  purposes  of  the  calculation  provided  for  in  Directive  [2000/12/EC]  Annex  VII, 
Part 1, Sub-part 4, the following shall apply: 

(a) 

(b) 

value adjustments made to take account of the credit quality of the counterparty 
may be included in the sum of value adjustments and provisions made for the 
exposures indicated in Annex II; 

subject  to  the  approval  of  the  competent  authorities,  if  the  credit  risk  of  the 
counterparty  is  adequately  taken  into  account  in  the  valuation  of  a  position 
included in the trading book the expected loss amount for the counterparty risk 
exposure shall be zero. 

For the purposes of point (a), for such institutions, such value adjustments shall not 
be included in own funds other than in accordance with this sub-paragraph. 

For the purposes of this Article, Article 153 and 154 of Directive [2000/12/EC] shall 

2. 
apply. 

(cid:208) 93/6/EEC (adapted) 

⌦ CHAPTER V ⌫ 

⌦ SECTION 1 ⌫ 

PROVISIONS AGAINST RISKS 

(cid:208) 93/6/EEC Art 4(1) 1st 
subparagraph (adapted) 
(cid:214) new 

Article 18 

The  competent  authorities  shall  require  iInstitutions  (cid:214) shall  have   to  provide  own 

1. 
funds which are always more than or equal to the sum of ⌦ the following ⌫ : 

EN 

29 

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(cid:208) 98/31/EC Art. 1.2 (adapted) 

i) (a)  the  capital  requirements,  calculated  in  accordance  with  ⌦ the  methods  and 
options  laid  down  in Articles  28  to  32  and  ⌫  Annexes  I,  II  and  VI  and,  as 
appropriate, Annex VIII, for their trading-book business; 

ii) (b) the  capital  requirements,  calculated  in  accordance  with  ⌦ the  methods  and 
options  laid  down  in ⌫  Annexes  III  and  VII  ⌦ IV ⌫  and,  as  appropriate, 
Annex VIII, for all of their business activities. 

(cid:208) 93/6/EEC Art. 4.1 (iii) and (iv) 
(adapted) 

(iii) 

the  capital  requirements  imposed  in  Directive  89/647/EEC  for  all  of  their  business 
activities, excluding both their trading-book business and their illiquid assets it they 
are deducted from own funds under paragraph 2 (d) of Annex V; 

(iv) 

the capital requirements imposed in paragraph 2. 

(cid:208) 93/6/EEC Art. 4.1 (iii) to (iv), 
second subparagraph 

Irrespective of the amount of the capital requirement referred to in (i) to (iv) the own-funds 
requirement for investment firms shall never be less than the amount prescribed in Annex IV. 

(cid:208) 93/6/EEC Art. 4 (2) to (5) 

2. The competent authorities shall require institutions to cover the risks arising in connection 
with business that is outside the scope of both this Directive and Directive 89/647/EEC and 
considered to be similar to the risks covered by those Directives by adequate own funds. 

3. If the own funds held by an institution fall below the amount of the own funds requirement 
imposed in paragraph 1, the competent authorities shall ensure that the institution in question 
takes appropriate measures to rectify its situation as quickly as possible. 

4. The competent authorities shall require institutions to set up systems to monitor and control 
the interest-rate risk on all of their business, and those systems shall be subject to overview by 
the competent authorities. 

5. Institutions shall be required to satisfy their competent authorities that they employ systems 
which can calculate their financial positions with reasonable accuracy at any time.  

(cid:208) 93/6/EEC Art 4(6) (adapted) 

Notwithstanding ⌦ By derogation to ⌫ paragraph 1, the competent authorities may 
2. 
allow  institutions  to  calculate  the  capital  requirements  for  their  trading  book  business  in 
accordance with Directive 89/647/EEC rather than in accordance with Annexes I and II to this 
Directive provided that ⌦ Article 75(a) of Directive [2000/12/EC] and paragraphs 6, 7, 8 and 
10 of Annex II of this Directive, ⌫ rather than in accordance with Annexes I and II of this 

EN 

30 

   EN 

 
 
 
 
 
 
Directive,  where  the  size  of  the  trading  book  business  meets  the  ⌦ following ⌫ 
requirements set out below:  

i) (a)  the trading-book business of such institutions does not normally exceed 5% of 

their total business; 

ii) (b) their total trading-book positions do not normally exceed ECU ⌦ EUR ⌫ 15 

million; and 

iii)(c) the trading-book business of  such institutions never exceeds 6% of their total 
business and their total trading-book positions never exceed ECU ⌦ EUR ⌫ 
20 million. 

(cid:208) 93/6/EEC Art 4(7) (adapted) 

In order to calculate the proportion that trading-book business bears to total business 
3. 
as in ⌦ points (a) and (c) of ⌫ paragraph 6 ⌦ 2 ⌫ i) and iii), the competent authorities 
may refer either to the size of the combined on- and off-balance-sheet business, to the profit 
and  loss  account  or  to  the  own  funds  of  the  institutions  in  question,  or  to  a  combination  of 
those  measurements.  When  the  size  of  on-  and  off-balance-sheet  business  is  assessed,  debt 
instruments  shall  be  valued  at  their  market  prices  or  their  principal  values,  equities  at  their 
market  prices  and  derivatives  according  to  the  nominal  or  market  values  of  the  instruments 
underlying  them.  Long  positions  and  short  positions  shall  be  summed  regardless  of  their 
signs. 

(cid:208) 93/6/EEC Art 4(8) (adapted) 

4. 
If an institution should happen for more than a short period to exceed either or both of 
the limits imposed in paragraph 6 ⌦ 2 (a) and (b)⌫ (i) and (ii) or to exceed either or both of 
the  limits  imposed  in  paragraph  6  ⌦ 2 (c)  ⌫  (iii),  it  shall  be  required  to  meet  the 
requirements imposed in Article ⌦ paragraph 1 (a) ⌫ 4 (i) rather than those of ⌦ Article 
75(a)  of ⌫Directive  89/647/EEC  ⌦ [2000/12/EC] ⌫  in  respect  of  its  trading-book 
business and to notify the competent authority. 

(cid:216) new 

Article 19 

1. 
For  the  purposes  of  paragraph  14  of  Annex  I,  subject  to  national  discretion,  a  0% 
weighting can be assigned to debt securities issued by the same entities and denominated and 
funded in domestic currency. 

(cid:208) 93/6/EEC Art 11(2) (adapted) 

Notwithstanding  ⌦ By  derogation  to ⌫  paragraphs  ⌦ 13  and ⌫  14  of  Annex  I, 
2. 
Member  States  may  set  a  specific  risk  requirement  for  any  bonds  assigned  a  weighting  of 
10%  under  Articles  11(2)  of  Directive  89/647/EEC  ⌦ falling  within  Annex  VI,  Part  1, 
paragraphs 65 to 67 of Directive [2000/12/EC], ⌫ equal to half the specific risk requirement 
for  a  qualifying  item  with  the  same  residual  maturity  as  such  a  bond  ⌦ ,  reduced  in 

EN 

31 

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accordance  with  the  percentages  given  in  Annex  VI,  Part  1,  paragraph  68  of  Directive 
[2000/12/EC] ⌫ . 

3. 
If,  as  set  out  in  paragraph  52  of  Annex  I,  a  competent  authority  approves  a  third 
country CIU as eligible, a competent authority in another Member State may make use of this 
recognition without conducting its own assessment. 

(cid:216) new 

Article 20 

Subject to paragraphs 2, 3 and 4 of this Article, and Article 34 of this Directive, the 

1. 
requirements in Article 75 of Directive [2000/12/EC] shall apply to investment firms.  

2. 
By derogation to paragraph 1, competent authorities may allow investment firms that 
are not authorised to provide the investment services listed in point 3 and point 6 of Annex I, 
Section  A  of  Directive  2004/39/EC  to  provide  own  funds  which  are  always  more  than  or 
equal to the higher of the following: 

(a) 

the sum of the capital requirements contained in points (a) to (c) of Article 75 
of Directive [2000/12/EC]; 

(b) 

the amount laid down in Article 21 of this Directive. 

3. 
By  derogation  to  paragraph  1,  competent  authorities  may  allow  investment  firms 
which hold initial capital as set out in Article 9, but which fall within the following categories, 
to  provide  own  funds  which  are  always  more  than  or  equal  to  the  sum  of  the  capital 
requirements calculated in accordance with the requirements contained in points (a) to (c) of 
Article  75  of  Directive  [2000/12/EC]  and  the  amount  prescribed  in  Article  21  of  this 
Directive: 

(a) 

investment  firms  that  deal  on  own  account  for  the  purpose  of  fulfilling  or 
executing a client order or for the purpose of gaining entrance to a clearing and 
settlement system or a recognised exchange when acting in an agency capacity 
or executing a client order; 

(b) 

investment firms: 

(i) 

that do not hold client money or securities; 

(ii) 

that undertake only dealing on own account; 

(iii) 

that have no external customers; 

(iv) 

the execution and settlement of whose transactions takes place under the 
responsibility of a clearing institution and are guaranteed by that clearing 
institution. 

Investment  firms  referred  to  in  paragraphs  2  and  3  shall  remain  subject  to  all  other 

4. 
provisions regarding operational risk set out in Annex V of Directive [2000/12/EC]. 

EN 

32 

   EN 

 
 
(cid:208) 93/6/EEC Annex IV 

Article 21 

Investment  firms  shall  be  required  to  hold  own  funds  equivalent  to  one  quarter  of  their 
preceding year's fixed overheads. 

The competent authorities may adjust that requirement in the event of a material change in a 
firm's business since the preceding year. 

Where  a  firm  has  not  completed  a  year's  business,  including  the  day  it  starts  up,  the 
requirement  shall  be  a  quarter  of  the  fixed  overheads  figure  projected  in  its  business  plan 
unless an adjustment to that plan is required by the authorities. 

⌦ SECTION 2 APPLICATION OF REQUIREMENTS ON A CONSOLIDATED BASIS ⌫ 

(cid:208) 93/6/EEC (adapted) 

(cid:216) new 

Article 22 

1. 
The  competent  authorities  required  or  mandated  to  exercise  supervision  of  groups 
covered  by  Article  2  on  a  consolidated  basis  may  waive,  on  a  case  by  case  basis,  the 
application of capital requirements on a consolidated basis provided that: 

(a) 

(b) 

(c) 

(d) 

each investment firm in such a group uses the definition of own funds given in 
Article 16; 

all investment firms in such a group fall within the categories in paragraphs 2 
and 3 of Article 20; 

each  investment  firm  in  such  a  group  meets  the  requirements  imposed  in 
Articles 18 and 20 on an individual basis and at the same time deducts from its 
own  funds  any  contingent  liability  in  favour  of  investment  firms,  financial 
institutions,  asset  management  companies  and  ancillary  services  undertakings 
which would otherwise be consolidated; 

any  financial  holding  company  which  is  the  parent  undertaking  of  any 
investment firm in such a group holds at least as much capital, defined here as 
the sum of points (a) to (h) of Article 57 of Directive [2000/12/EC], as the sum 
of  the  full  book  value  of  any  holdings,  subordinated  claims,  and  instruments 
referred  to  in  Article  57  of  Directive  [2000/12/EC]  in  investment  firms, 
financial  institutions,  asset  management  companies  and  ancillary  services 
undertakings which would otherwise be consolidated, and the total amount of 
any  contingent  liability  in  favour  of  investment  firms,  financial  institutions, 

EN 

33 

   EN 

 
 
 
 
asset management companies and ancillary services undertakings which would 
otherwise be consolidated; 

Where the criteria in the first sub-paragraph are met, each investment firm shall have 
in  place  systems  to  monitor  and  control  the  sources  of  capital  and  funding  of  all 
financial  holding  companies, 
institutions,  asset 
management companies and ancillary services undertakings within the group. 

investment  firms,  financial 

By  derogation  to  paragraph  1,  competent  authorities  may  permit  financial  holding 
2. 
companies which are the parent of an investment firm in such a group to use a value lower 
than  the  value  calculated  under  point  (d)  of  paragraph  1,  but  no  lower  than  the  sum  of  the 
requirements  imposed  in  Article  18  and  20  on  an  individual  basis  to  investment  firms, 
financial institutions, asset management companies and ancillary services undertakings which 
would otherwise be consolidated, and the total amount of any contingent liability in favour of 
investment  firms,  financial  institutions,  asset  management  companies  and  ancillary  services 
undertakings which would otherwise be consolidated. For the purposes of this paragraph the 
capital  requirement  for  financial  institutions,  asset  management  companies  and  ancillary 
services undertakings is a notional capital requirement. 

(cid:208) 93/6/EEC Art. 7(5) & (6) 
(adapted) 

Article 23 

The competent authorities shall require investment firms in a group which has been granted 
the  waiver  provided  for  in  Article  20 ⌦ 22 ⌫  to  notify  them  of  the  risks  which  could 
undermine  their  financial  positions,  including  those  associated  with  the  composition  and 
sources  of  their  capital  and  funding.  If  the  competent  authorities  then  consider  that  the 
financial positions of those investment firms is not adequately protected, they shall require the 
investment firms to take measures including, if necessary, limitations on the transfer of capital 
from such firms to group entities. 

Where the competent authorities waive the obligation of supervision on a consolidated basis 
provided  for  in ⌦ Article  22 ⌫  paragraph  4  they  shall  take  other  appropriate  measures  to 
monitor the risks, namely large exposures, of the whole group, including any undertakings not 
located in a Member State. 

(cid:216) new 

Where the competent authorities waive the obligation of supervision on a consolidated basis 
provided for in Article 22, the requirements of Title V, Chapter 5 of Directive [2000/12/EC] 
shall continue to apply on an individual basis and the requirements of Article 124 of Directive 
[2000/12/EC] shall continue to apply to the supervision of investment firms on an individual 
basis. 

7. Member States may waive the application of the requirements imposed in Articles 4 and 5, 
on an individual or subconsolidated basis, to an institution which, as a parent undertaking, is 

(cid:208) 93/6/EC Art. 7 (7) to (9) 

EN 

34 

   EN 

 
 
 
 
subject  to  supervision  on  a  consolidated  basis,  and  to  any  subsidiary  of  such  an  institution 
which is subject to their authorization and supervision and is included in the supervision on a 
consolidated basis of the institution which is its parent company. 

The same right of waiver shall be granted where the parent undertaking is a financial holding 
company which has its head office in the same Member State as the institution, provided that 
it  is  subject  to  the  same  supervision  as  that  exercised  over  credit  institutions  or  investment 
firms, and in particular the requirements imposed in Articles 4 and 5. 

In  both  cases,  if  the  right  of  waiver  is  exercised  measures  must  be  taken  to  ensure  the 
satisfactory allocation of own funds within the group. 

8. Where an institution the parent undertaking of which is an institution has been authorized 
and  is  situated  in  another  Member  State,  the  competent  authorities  which  granted  that 
authorization  shall  apply  the  rules  laid  down  in  Articles  4  and  5  to  that  institution  on  a 
individual or, where appropriate, a subconsolidated basis. 

9.  Notwithstanding  paragraph  8,  the  competent  authorities  responsible  for  authorizing  the 
subsidiary  of  a  parent  undertaking  which  is  an  institution  may,  by  a  bilateral  agreement, 
delegate  their  responsibility  for  supervising  the  subsidiary's  capital  adequacy  and  large 
exposures to the competent authorities which authorized and supervise the parent undertaking. 
The Commission must be kept informed of the existence and content of such agreements. It 
shall forward such information to the competent authorities of the other Member States and to 
the Banking Advisory Committee and to the Council, except in the case of groups covered by 
paragraph 3. 

(cid:216) new 

Article 24 

By derogation to Article 2(2), competent authorities may exempt investment firms from the 
consolidated  capital  requirement  established  there,  provided  that  all  the  investment  firms  in 
the group fall within the investment firms referred to in Article 20(2) and the group does not 
include credit institutions. 

Where the requirements of the first sub-paragraph are met, the parent investment firm shall be 
required  to  provide  own  funds  which  are  always  more  than  or  equal  to  the  higher  of  the 
following two consolidated requirements, calculated as set out in Section 3 of this Chapter: 

(a) 

the sum of the capital requirements contained in points (a) to (c) of Article 75 
of Directive [2000/12/EC]; 

(b) 

the amount prescribed in Article 21. 

Article 25 

By derogation to Article 2(2), competent authorities may exempt investment firms from the 
consolidated  capital  requirement  established  there,  provided  that  all  the  investment  firms  in 
the group fall within the investment firms referred to in Articles 20(2) and (3), and the group 
does not include credit institutions. 

EN 

35 

   EN 

 
 
Where the requirements of the first sub-paragraph are met, the parent investment firm shall be 
required  to  provide  own  funds  which  are  always  more  than  or  equal  to  the  sum  of  the 
consolidated  capital  requirements,  calculated  as  set  out  in  Section  3  of  this  Chapter,  of  the 
requirements  contained  in  points  (a)  to  (c)  of  Article  75  of  Directive  [2000/12/EC]  and  the 
amount prescribed in Article 21 of this Directive. 

(cid:208) 93/6/EEC (adapted) 

⌦ SECTION 3 ⌫ 

CALCULATING ⌦ CALCULATION OF ⌫ CONSOLIDATED REQUIREMENTS 

(cid:208) 98/31/EC Art. 1.4 (adapted) 

Article 26 

Where  the  right  of  waiver  provided  for  in  Article  20 ⌦ 22 ⌫  is  not  exercised,  the 
1. 
competent authorities may, for the purpose of calculating the capital requirements set out in 
Annexes I and VIII and the exposures to clients set out in ⌦ Articles 28 to 32 and ⌫ Annex 
VI  on  a  consolidated  basis,  permit  positions  in  the  trading  book  of  one  institution  to  offset 
positions  in  the  trading  book  of  another  institution  according  to  the  rules  set  out  in 
⌦ Articles 28 to 32 ⌫ Annexes I, VI and VIII. 

In  addition,  they  may  allow  foreign-exchange  positions  in  one  institution  to  offset 
foreign-exchange positions in another institution in accordance with the rules set out 
in Annex III and/or Annex VIII. They may also allow commodities positions in one 
institution to offset commodities positions in another institution in accordance with 
the rules set out in Annex VII ⌦ IV ⌫ and/or Annex VIII. 

2. 
The  competent  authorities  may  also  permit  offsetting  of  the  trading  book  and  of  the 
foreign-exchange  and  commodities  positions,  respectively,  of  undertakings  located  in  third 
countries, subject to the simultaneous fulfilment of the following conditions: 

(cid:208) 93/6/EEC Art 7(11) (adapted) 

i) (a)  those  undertakings  have  been  authorized  in  a  third  country  and  either  satisfy 
the  definition  of  credit  institution  given  in  the  first  indent  of  Article  1 
⌦ 4(1) ⌫  of  Directive  77/780/EEC  ⌦ [2000/12/EC] ⌫  or  are  recognized 
third-country investment firms; 

ii) (b) such  undertakings  comply,  on  a  solo  basis,  with  capital  adequacy  rules 

equivalent to those laid down in this Directive; 

iii)(c) no  regulations  exist  in  the  countries  in  question  which  might  significantly 

affect the transfer of funds within the group. 

EN 

36 

   EN 

 
 
 
 
3. 
The competent authorities may also allow the offsetting provided for in paragraph 10 
⌦ 1 ⌫ between institutions within a group that have been authorized in the Member State in 
question, provided that: 

(cid:208) 93/6/EEC Art 7(12) (adapted) 

i) (a)  there is a satisfactory allocation of capital within the group; 

ii) (b) the regulatory, legal or contractual framework in which the institutions operate 

is such as to guarantee mutual financial support within the group. 

(cid:208) 93/6/EEC Art 7(13) (adapted) 

4. 
Furthermore,  the  competent  authorities  may  allow  the  offsetting  provided  for  in 
paragraph 10 ⌦ 1 ⌫ between institutions within a group that fulfil the conditions imposed 
in  paragraph  12  ⌦ 3 ⌫  and  any  institution  included  in  the  same  group  which  has  been 
authorized  in  another  Member  State  provided  that  that  institution  is  obliged  to  fulfil  the 
capital  requirements  imposed  in  Articles  4  and  5  ⌦ 18,  20  and  28 ⌫  on  a  solo  ⌦ an 
individual ⌫ basis. 

(cid:208) 93/6/EEC Art 7(14) & (15) 
(adapted) 

Article 27 

In  the  calculation  of  own  funds  on  a  consolidated  basis  Article  5  ⌦ 65 ⌫  of 

1. 
Directive 89/299/EEC ⌦ [2000/12/EC] ⌫ shall apply. 

The  competent  authorities  responsible  for  exercising  supervision  on  a  consolidated 
2. 
basis  may  recognise  the  validity  of  the  specific  own-funds  definitions  applicable  to  the 
institutions concerned under Chapter IV in the calculation of their consolidated own funds. 

(cid:208) 93/6/EEC (adapted) 

⌦ SECTION 4 ⌫ 

⌦ MONITORING AND CONTROL OF LARGE EXPOSURES ⌫ 

(cid:208) 93/6/EEC Art 5(1) (adapted) 

Article 28 

Institutions  shall  monitor  and  control  their  large  exposures  in  accordance  with 

1. 
Directive 92/121/EEC ⌦ Articles 106 to 118 of Directive [2000/12/EC]. ⌫ 

EN 

37 

   EN 

 
 
 
 
 
 
(cid:208) 98/31/EC Art. 1.3 (adapted) 

2.  ⌦ By derogation to paragraph 1, ⌫ Notwithstanding institutions which calculate the 
capital requirements for their trading-book business in accordance with Annexes I and II, and, 
as appropriate, Annex VIII, shall monitor and control their large exposures in accordance with 
Directive  92/121/EEC  ⌦ Articles  106  to  118 of  Directive  [2000/12/EC] ⌫  subject  to  the 
amendments laid down in Articles 27 to 30 ⌦ 29 to 32 ⌫ of this Directive. 

3. 
By 31 December 2007, the Commission shall submit to the European Parliament and 
to  the  Council  a  report  on  the  functioning  of  this  Section,  together  with  any  appropriate 
proposals.  

(cid:216) new 

(cid:208) 93/6/EEC Annex VI (2) 
(adapted) 
(cid:214) new 

Article 29 

The exposures to individual clients which arise on the trading book shall be calculated 

1. 
by summing the following items (i), (ii) and (iii): 

i) (a)  the excess — where positive — of an institution's long positions over its short 
positions  in  all  the  financial  instruments  issued  by  the  client  in  question, 
⌦ with  ⌫  (the  net  position  in  each  of  the  different  instruments  being 
calculated according to the methods laid down in Annex I); 

ii) (b) the  net  exposure,  in  the  case  of  the  underwriting  of  a  debt  or  an  equity 
instrument;,  the  institution's  exposure  shall  be  its  net  exposure;  (which  is 
calculated  by  deducting  those  underwriting  positions  which  are  subscribed  or 
sub-underwritten by third parties on the basis of a formal agreement) reduced 
by the factors set out in paragraph 39 of Annex I. 

iii)(c) the  exposures  due to the  transactions,  agreements and contracts  referred to in 
Annex  II  with  the  client  in  question,  such  exposures  being  calculated  in  the 
manner  laid  down  in  that  Annex,  (cid:214) for  the  calculation  of  exposure  values  
without application of the weightings for counterparty risk. 

⌦ For the purposes of point (b), the net exposure is calculated by deducting those 
underwriting positions which are subscribed or sub-underwritten by third parties on 
the  basis  of  a  formal  agreement  reduced  by  the  factors  set  out  in  paragraph 41  of 
Annex I. ⌫ 

⌦ For  the  purposes  of  point  (b), ⌫  Ppending  further  coordination,  the  competent 
authorities  shall  require  institutions  to  set  up  systems  to  monitor  and  control  their 
underwriting exposures between the time of the initial commitment and working day 
one in the light of the nature of the risks incurred in the markets in question. 

EN 

38 

   EN 

 
 
 
 
(cid:214)For the purposes of point (c), Articles 84 to 89 of Directive [2000/12/EC] shall be 
excluded from the reference in paragraph 5 of Annex II of this Directive. 

Thereafter, T ⌦ the ⌫ exposures to groups of connected clients on the trading book 
2. 
shall be calculated by summing the exposures to individual clients in a group, as calculated in 
paragraph 12. 

(cid:208) 93/6/EEC Annex VI (3) 
(adapted) 

(cid:208) 93/6/EEC Annex VI (4) 
(adapted) 

Article 30 

1. 
The  overall  exposures  to  individual  clients  or  groups  of  connected  clients  shall  be 
calculated  by  summing  the  exposures  which  arise  on  the  trading  book  and  the  exposures 
which arise on the non-trading book, taking into account Article 4 ⌦ 112 to 117 ⌫ (6) to 
(12) of Directive 92/121/EEC ⌦ [2000/12/EC] ⌫. 

In order to calculate the exposure on the non-trading book, institutions shall take the 
exposure arising from assets which are deducted from their own funds by virtue of 
⌦ point (d) of Article 13(2) ⌫ paragraph 2(d) of Annex V to be zero. 

(cid:208) 93/6/EEC Annex VI (5) 
(adapted) 
(cid:214) new 

2. 
Institutions'  overall  exposures  to  individual  clients  and  groups  of  connected  clients 
calculated  in  accordance  with  paragraph  4  shall  be  reported  in  accordance  with  Article  3 
⌦ 110 ⌫ of Directive 92/121/EEC ⌦ [2000/12/EC] ⌫. 

(cid:214) Other  than  in  relation  to  repurchase  transactions,  securities  or  commodities 
lending  or  borrowing  transactions,  the  calculation  of  large  exposures  to  clients  and 
groups of connected clients for reporting purposes shall not include the recognition 
of credit risk mitigation.  

(cid:208) 93/6/EEC Annex VI (6) 
(adapted) 

That ⌦ The ⌫  sum  of  the  exposures  to  an  individual  client  or  group  of  connected 
3. 
clients ⌦ in paragraph 1 ⌫ shall be limited in accordance with Article 4 ⌦ Articles 111 to 
117 ⌫  of  Directive  92/121/EEC ⌦ [2000/12/EC] ⌫  subject  to  the  transitional  provisions 
of Article 6 of the same Directive. 

EN 

39 

   EN 

 
 
 
 
 
(cid:208) 93/6/EEC Annex VI (7) 
(adapted) 

4.  ⌦ By  derogation  to ⌫ Notwithstanding  paragraph  ⌦ 3 ⌫  6,  the  competent 
authorities  may  allow  assets  constituting  claims  and  other  exposures  investment  firms  on 
recognized  recognised  third-country  investment  firms  and  recognized  recognised  clearing 
houses and exchanges in financial instruments to be subject to the same treatment accorded to 
those on institutions ⌦ laid out ⌫ in Article ⌦ Articles 113(2)(i), 115(2) and 116⌫ 4 (7) 
(i), (9) and (10) of Directive 92/121/EEC ⌦ [2000/12/EC]. ⌫ 

(cid:208) 93/6/EEC Annex VI (8) 
(adapted) 

Article 31 

The competent authorities may authorize the limits laid down in Article 4 ⌦ Articles 111 to 
117 ⌫ of Directive 92/121/EEC ⌦ [2000/12/EC] ⌫ to be exceeded subject to ⌦ if ⌫ the 
following conditions being met simultaneously ⌦ are met ⌫: 

1. (a) 

the  exposure  on  the  non-trading  book  to  the  client  or  group  of  clients  in  question 
does not exceed the limits laid down in Directive 92/121/EEC ⌦ Articles 111 to 117 
of  [Directive  2000/12/EC] ⌫,  calculated  with  reference  to  own  funds  as  defined 
⌦ specified ⌫  in  Directive  89/299/EEC  ⌦ [2000/12/EC] ⌫,  so  that  the  excess 
arises entirely on the trading book; 

2.(b) 

the ⌦ institution ⌫ firm  meets  an  additional  capital  requirement  on  the  excess  in 
respect  of  the  limits  laid  down  in  Article  4  ⌦ 111 ⌫  (1)  and  (2)  of  Directive 
92/121/EEC  ⌦ [2000/12/EC],  calculated  in  accordance  with  Annex  VI  of  this 
Directive⌫; 

3.(c)  where  10  days  or  less  has  elapsed  since  the  excess  occurred,  the  trading-book 
exposure  to  the  client  or  group  of  connected  clients  in  question  must  not  exceed 
500 % of the institution's own funds; 

4.(d) 

any  excesses  which  have  persisted  for  more  than  10  days  must  not,  in  aggregate, 
exceed 600 % of the institution's own funds; 

5 .(e) 

institutions  must  report  to  the  competent  authorities  every  three  months  all  cases 
where  the  limits  laid  down  in  Article  4  ⌦ 111 ⌫  (1)  and  (2)  of  Directive 
92/121/EEC  ⌦ [2000/12/EC] ⌫  have  been  exceeded  during  the  preceding  three 
months. 

In relation to point (e), in each case in which the limits have been exceeded the amount of the 
excess and the name of the client concerned must be reported. 

EN 

40 

   EN 

 
 
 
(cid:208) 93/6/EEC Annex VI (9) & (12) 
(adapted) 

Article 32 

1. 
The  competent  authorities  shall  establish  procedures  of  which  they  shall  notify  the 
Council and the Commissionto prevent institutions from deliberately avoiding the additional 
capital requirements that they would otherwise incur, on exposures exceeding the limits laid 
down in Article 4 ⌦ 111 ⌫ (1) and (2) of Directive 92/121/EEC ⌦ [2000/12/EC] ⌫ once 
those  exposures  have  been  maintained  for  more  than  10  days,  by  means  of  temporarily 
transferring the exposures in question to another company, whether within the same group or 
not, and/or by undertaking artificial transactions to close out the exposure during the 10 day 
period and create a new exposure. Institutions shall maintain systems which ensure that any 
transfer which has this effect is immediately reported to the competent authorities. 

The  competent  authorities  shall  notify  ⌦ the  Council  and ⌫  the  Commission  of 
those procedures. 

Institutions  shall  maintain  systems  which  ensure  that  any  transfer  which  has  the 
effect referred to in the first subparagraph is immediately reported to the competent 
authorities. 

2. 
The competent authorities may permit those institutions which are allowed to use the 
alternative  definition  ⌦ determination ⌫  of  own  funds  under  paragraph  2  of  Annex  V 
⌦ Article  13(2) ⌫  to  use  that  definition  ⌦ determination ⌫  for  the  purposes  of 
paragraphs  5,  6  and  8  of  this  Annex  ⌦ Articles  30(2),  30(3)  and  31 ⌫  provided  that  the 
institutions  concerned  are  required,  in  addition,  to  meet  all  of  the  obligations  set  out  in 
Articles 3 and 4 ⌦ 110 to 117 ⌫ of Directive 92/121/EEC ⌦ [2000/12/EC] ⌫, in respect 
of  the  exposures  which  arise  outside  their  trading  books  by  using  own  funds  as  defined  in 
Directive 89/299/EEC ⌦ [2000/12/EC] ⌫. 

(cid:208) 93/6/EEC (adapted) 

⌦ SECTION 5 ⌫ 

VALUATION OF POSITIONS FOR REPORTING PURPOSES 

Article 33 

(cid:216) new 

1. 
All  trading  book  positions  shall  be  subject  to  prudent  valuation  rules  as  specified  in 
Annex  VII,  Part  B.  These  rules  shall  require  institutions  to  ensure  that  the  value  applied  to 
each of its trading book positions appropriately reflects the current market value. This value 
shall contain an appropriate degree of certainty having regard to the dynamic nature of trading 

EN 

41 

   EN 

 
 
 
 
book positions, the demands of prudential soundness and the mode of operation and purpose 
of capital requirements in respect of trading book positions. 

2. 

Positions shall be re-valued at least daily. 

(cid:208) 93/6/EEC Art. 6 (adapted) 

1. Institutions shall mark to market their trading books on a daily basis unless they are subject 
to Article 4 (6). 

23. 
In the absence of readily available market prices, for example in the case of dealing in 
new  issues  on  the  primary  markets,  the  competent  authorities  may  waive  the  requirement 
imposed in paragraphs 1 ⌦ and 2 ⌫ and ⌦ shall ⌫ require institutions to use alternative 
methods  of  valuation  provided  that  those  methods  are  sufficiently  prudent  and  have  been 
approved by competent authorities. 

SUPERVISION ON A CONSOLIDATED BASIS 

(cid:208) 93/6/EEC 

SCOPE OF APPLICATION  

(cid:216) new 

(cid:208) 96/3/EEC 

Article 7 

General principles 

(cid:208) 98/31EC Art. 7(10) (adapted) 

10.  Where  the  rights  of  waiver  provided  for  in  paragraphs  7  and  9  are  not  exercised,  the 
competent authorities may, for the purpose of calculating the capital requirements set out in 
Annexes I and VIII and the exposures to clients set out in Annex VI on a consolidated basis, 
permit positions in the trading book of one institution to offset positions in the trading book of 
another institution according to the rules set out in Annexes I, VI and VIII. 

In  addition,  they  may  allow  foreign-exchange  positions  in  one  institution  to  offset  foreign-
exchange  positions  in  another  institution  in  accordance  with  the  rules  set  out  in  Annex  III 
and/or  Annex  VIII.  They  may  also  allow  commodities  positions  in  one  institution  to  offset 
commodities positions in another institution in accordance with the rules set out in Annex VII 
and/or Annex VIII. 

EN 

42 

   EN 

 
 
 
 
 
 
(cid:216) new  

SECTION 6 

RISK MANAGEMENT AND CAPITAL ASSESSMENT 

Article 34 

Competent  authorities  shall  require  that  every  investment  firm,  as  well  as  meeting  the 
requirements in Article 13 of Directive 2004/39/EC, shall meet the requirements in Articles 
22 and 123 of Directive [2000/12/EC]. 

(cid:208) 93/6/EEC (adapted) 

⌦ SECTION 7 ⌫ 

REPORTING REQUIREMENTS 

(cid:208) 93/6/EEC Art. 8 (adapted) 

Article 35 

1. 
Member States shall require that investment firms and credit institutions provide the 
competent authorities of their home Member States with all the information necessary for the 
assessment  of  their  compliance  with  the  rules  adopted  in  accordance  with  this  Directive. 
institutions'internal  control  mechanisms  and 
Member  States  shall  also  ensure 
administrative and accounting procedures ⌦ of the institutions ⌫ permit the verification of 
their compliance with such rules at all times. 

that 

Investment firms shall be obliged toreport to the competent authorities in the manner 
2. 
specified by the latter at least once every month in the case of firms covered by Article 3(3) 
⌦ 9 ⌫ , at least once every three months in the case of firms covered by Article 3 ⌦ 5 ⌫ 
(1) and at least once every six months in the case of firms covered by Article 3 ⌦ 5 ⌫ (2). 

Notwithstanding paragraph 2, investment firms covered by Articles 3 ⌦ 5 ⌫ (1) and 
3. 
(3)  ⌦ 9 ⌫  shall  be  required  to  provide  the  information  on  a  consolidated  or  sub-
consolidated basis only once every six months. 

Credit institutions shall be obliged to report in the manner specified by the competent 
to  report  under  Directive  89/647/EEC 

they  are  obliged 

4. 
authorities  as  often  as 
⌦ [2000/12/EC] ⌫. 

EN 

43 

   EN 

 
 
 
 
(cid:208) 98/31/EC Art. 1.5 

5. 
The competent authorities shall oblige institutions to report to them immediately any 
case  in  which  their  counter-parties  in  repurchase  and  reverse  repurchase  agreements  or 
securities  and  commodities-lending  and  securities  and  commodities-borrowing  transactions 
default on their obligations. Commission shall report to the Council on such cases and their 
implications for the treatment of such agreements and transactions in this Directive not more 
than three years after the date referred to in Article 12. Such report shall also describe the way 
that  institutions  meet  those  of  conditions  (i)  to  (v)  in  Article  2(6)(b)  that  apply  to  them,  in 
particular  condition  (v).  Furthermore  it  shall  give  details  of  any  changes  in  the  relative 
volume  of  institutions'  traditional  lending  and  their  lending  through  reverse  repurchase 
the 
agreements  and  securities-borrowing  or  commodities-borrowing 
Commission  concludes  on  the  basis  of  this  report  and  other  information  that  further 
safeguards are needed to prevent abuse, it shall make appropriate proposals. 

transactions.  If 

(cid:208) 93/6/EEC (adapted) 

⌦ Chapter VI ⌫ 

⌦ SECTION 1 ⌫ 

COMPETENT AUTHORITIES 

(cid:208) 93/6/EEC Art. 9 (adapted) 

Article 36 

Member States shall designate the authorities which are ⌦ competent ⌫ to carry out 
1. 
the  duties  provided  for  in  this  Directive.  They  shall  inform  the  Commission  thereof, 
indicating any division of duties. 

The  ⌦ competent ⌫  authorities  referred  to  in  paragraph  1  must  ⌦ shall ⌫  be 
2. 
public authorities or bodies officially recognized by national law or by public authorities as 
part of the supervisory system in operation in the Member State concerned. 

The  ⌦ competent ⌫  authorities  concerned  must  ⌦ shall ⌫  be  granted  all  the 
3. 
powers necessary for the performance of their tasks, and in particular that of overseeing the 
constitution of trading books. 

1. 

4. The competent authorities of the various Member States shall collaborate closely 
in  the  performance  of  the  duties  provided  for  in  this  Directive,  particularly  when 
investment services are provided on a services basis or through the establishment of 
branches  in  one  or  more  Member  States.  They  shall  on  request  supply  one  another 
with  all  information  likely  to  facilitate  the  supervision  of  the  capital  adequacy  of 
investment  firms  and  credit  institutions,  in  particular  the  verification  of  their 
compliance with the rules laid down in this Directive. Any exchange of information 

EN 

44 

   EN 

 
 
 
 
between  competent  authorities  which  is  provided  for  in  this  Directive  in  respect  of 
investment firms shall be subject to the obligation of professional secrecy imposed in 
Article  25  of  Directive  93/22/EEC  and,  as  regards  credit  institutions,  to  the 
obligation imposed in Article 12 of Directive 77/780/EEC, as amended by Directive 
89/646/EEC. 

(cid:216) new 

SECTION 2 

SUPERVISION 

Article 37 

Articles  124  to  132,  136  and  144  of  Directive  [2000/12/EC]  shall  apply  mutatis 

1. 
mutandis to the supervision of investment firms in accordance with the following:. 

(a) 

(b) 

(c) 

references  to  Article  6  of  Directive  [2000/12/EC]  shall  be  construed  as 
references to Article 5 of Directive 2004/39/EC; 

references to Article 22 and 123 of Directive [2000/12/EC] shall be construed 
as references to Article 34 of this Directive; 

references  to  Articles  44  to  52  of  Directive  [2000/12/EC]  shall  be  read  as 
references to Articles 54 and 58 of Directive 2004/39/EC. 

Where  an  EU  parent  financial  holding  company  has  as  subsidiary  both  a  credit 
institution  and  an  investment  firm,  one  competent  authority  responsible  for 
supervision  of  the  credit  institution  shall  be  identified  to  be  responsible  for 
consolidated supervision of the entities controlled by that parent. 

The requirements set out in Article 129(2) of Directive [2000/12/EC] shall also apply 

2. 
to the recognition of internal models of institutions under Annex V of this Directive. 

The  period  for  the  recognition  referred  to  in  the  first  sub-paragraph  shall  be  six 
months. 

(cid:208) 93/6/EEC Art. 9 (4) (adapted) 

Article 38 

The 

competent 

shall 
1. 
⌦ cooperate ⌫collaborate  closely  in  the  performance  of  the  duties  provided  for  in  this 
Directive, particularly when ⌦ where ⌫investment services are provided on a services basis 
or through the establishment of branches in one or more Member States.  

various  Member 

authorities 

States 

the 

of 

EN 

45 

   EN 

 
 
 
They shall on request supply one another with all information likely to facilitate the 
supervision  of  the  capital  adequacy  of  investment  firms  and  credit  institutions,  in 
particular  the  verification  of  their  compliance  with  the  rules  laid  down  in  this 
Directive. 

2. 
Any exchange of information between competent authorities which is provided for in 
this  Directive  in  respect  of  investment  firms  shall  be  subject  to  the  ⌦ following ⌫ 
obligation ⌦ s ⌫ of professional secrecy ⌦ : ⌫ 

(a)  ⌦ for investment firms, those ⌫ imposed in Article 25 ⌦ 54 and 58 ⌫ of 

Directive 93/22/EEC ⌦ 2004/39/EC ⌫; 

(b) 

and,  as  regards⌦ for ⌫  credit  institutions,  to  the  obligation  ⌦ those ⌫ 
imposed in Articles ⌦ 44 to 52 ⌫ 12 of Directive 77/780/EEC, as amended 
by Directive 89/646/EEC ⌦of Directive [2000/12/EC] ⌫ . 

(cid:216) new 

Chapter VII 

Disclosure 

Article 39 

The  requirements  set  out  in  Title  V,  Chapter  5  of  Directive  [2000/12/EC]  shall  apply  to 
investment firms. 

(cid:208) 93/6/EEC (adapted) 

⌦ Chapter VIII ⌫ 

⌦ SECTION 1 ⌫ 

(cid:216) new 

Article 40 

For  the  purposes  of  the  calculation  of  minimum  capital  requirements  for  counterparty  risk 
under this directive, and for credit risk under Directive [2000/12/EC], and without prejudice 
to the provisions of the second to sixth paragraphs  of Annex  III of Directive [2000/12/EC], 
exposures to recognized third-country investment firms and exposures incurred to recognized 
clearing houses and exchanges shall be treated as exposures to institutions. 

EN 

46 

   EN 

 
 
 
 
By 31 December 2008, the Commission shall examine and, if necessary, revise the treatment 
of counterparty risk set out in Annex II. 

Article 41 

(cid:208) 93/6/EEC (adapted) 

⌦ SECTION 2 ⌫ 

⌦POWERS OF EXECUTION⌫ 

(cid:208) 93/6/EEC Art. 10 (adapted) 
(cid:214) new 

Article 42 

Pending  adoption  of  a  further  Directive  laying  down  provisions  for  adapting  this 
1. 
Directive  to  technical  progress  in  the  areas  specified  below,  the  Council  shall,  acting  by 
qualified  majority  on  a  proposal  form  the  Commission,  in  accordance  with  Decision 
87/373/EEC, adopt those adaptations which may be necessary as follows ⌦The Commission 
shall  decide  on  any  amendments  in  the  following  areas  in  accordance  with  the  procedure 
referred to in Article 43(2). ⌫ 

(a) 

(b) 

(c) 

clarification of the definitions in Article 2 ⌦ 3 ⌫ in order to ensure uniform 
application of this Directive throughout the Community; 

clarification  of  the  definitions  in  Article  2  ⌦ 3 ⌫  to  take  account  of 
developments on financial markets; 

alteration of the amounts of initial capital prescribed in Articles 3 ⌦ 5 to 9 ⌫ 
and  the  amount  referred  to  in  Article  4(6)  ⌦18(2)⌫  to  take  account  of 
developments in the economic and monetary field; 

(cid:214) (d) amendment  of  the  categories  of  investment  firms  in  Articles  20(2)  and  (3)  to 

take account of developments on financial markets;  

(cid:214) (e) clarification  of  the  requirement  laid  down  in  Article  21  to  ensure  uniform 

application of this Directive throughout the Community;  

(f) 

the alignment of terminology on and the framing of definitions in accordance 
with subsequent acts on institutions and related matters.; 

(cid:214) (g) amendment  of  the  technical  provisions  in  Annexes  I  to  VII  in  order  to  take 
account  of  developments  in  financial  markets,  risk  measurement,  accounting 
standards or requirements set out in Community legislation.  

EN 

47 

   EN 

 
 
 
(cid:216) new 

Article 43 

1. 

The Commission shall be assisted by a Committee. 

Where  reference  is  made  to  this  paragraph,  the  procedure  laid  down  in  Article  5  of 

2. 
Decision 1999/468/EC shall apply, in compliance with Article 7(3) and Article 8 thereof. 

The  period  provided  for  in  Article  5(6)  of  Decision  1999/468/EC  shall  be  three 
months. 

(cid:208) 93/6/EEC (adapted) 

⌦ SECTION 3 ⌫ 

TRANSITIONAL PROVISIONS 

(cid:208) 93/6/EEC Art. 11 

Article 11 

1.  Member  States  may  authorize  investment  firms  subject  to  Article  30  (1)  of  Directive 
93/22/EEC the own funds of which are on the day of the application of this Directive lower 
than the levels specified in Article 3 (1) to (3) of this Directive. Thereafter, however, the own 
funds of such investment firms must fulfil the conditions laid down in Article 3 (5) to (8) of 
this Directive. 

2.  Notwithstanding  paragraph  14  of  Annex  I,  Member  States  may  set  a  specific-risk 
requirement  for  any  bonds  assigned  a  weighting  of  10 %  under  Article  11  (2)  of  Directive 
89/647/EEC  equal  to  half  the  specific-risk  requirement  for  a  qualifying  item  with  the  same 
residual maturity as such a bond. 

(cid:208) 98/31/EC Art. 1.6 (adapted) 

Article 1 

Until 31 December 2006, Member States may authorise their institutions to use the minimum 
spread,  carry  and  outright  rates  set  out  in  the  following  table  instead  of  those  indicated  in 
paragraphs  13,  14,  17  and  18  of  Annex  VII  provided  that  the  institutions,  in  the  opinion  of 
their competent authorities: 

(i) 

(ii) 

undertake significant commodities business, 

have a diversified commodities portfolio, and 

EN 

48 

   EN 

 
 
 
 
 
(iii) 

are  not  yet  in  a  position  to  use  internal  models  for  the  purpose  of  calculating  the 
capital requirement on commodities risk in accordance with Annex VIII. 

Table 

Precious metals 
(except gold) 

Base 
metals 

Agricultural 
products (softs) 

Other, including 
energy products 

Spread 
rate (%) 

1.0 

Carry 
rate (%) 

0.3 

Outright 
rate (%) 

8 

1.2 

1.5 

0.5 

0.6 

10 

12 

1.5 

0.6 

15 

Member States shall inform the Commission of the use they make of this Article. 

(cid:216) new 

Article 44 

Article 152(1) to (6) of Directive [2000/12/EC] shall apply, in accordance with Article 2 and 
Chapter V, Sections 2 and 3 of this Directive, to investment firms calculating risk-weighted 
exposure amounts, for the purposes of Annex II of this Directive, in accordance with Articles 
84  to  89  of  Directive  [2000/12/EC],  or  using  the  Advanced  Measurement  Approach  as 
specified in Article 105 of that Directive for the calculation of their capital requirements for 
operational risk. 

Article 45 

Until 31 December 2012, for investment firms the relevant indicator for the trading and sales 
business line of which represents at least 50% of the total of relevant indicators for all of its 
business lines calculated in accordance with Article 20 of this Directive and Annex X, Part 2, 
paragraphs 1 to 8 of Directive [2000/12/EC], Member States may apply a percentage of 15% 
to the business line “trading and sales”. 

EN 

49 

   EN 

 
 
 
 
(cid:208) 93/6/EEC Art. 12 (adapted) 
(cid:214) new 

⌦ SECTION 4 ⌫ 

FINAL PROVISIONS 

Article 46 

1. 
Member  States  shall  bring  into  force  the  laws,  regulations  and  administrative 
provisions necessary for them to comply with this Directive by the date fixed in the second 
paragraph of Article 31 of Directive 93/22/EEC. They shall forthwith inform the Commission 
thereof. 

1. 
Member States shall adopt and publish, by 31 December 2006 at the latest, the laws, 
regulations and administrative provisions necessary to comply with Articles 2, 3, 11, 13, 17, 
18, 19, 20, 22, 23, 24, 25, 29, 30, 33, 34, 35, 37, 39, 40, 42, 44, 45, 47 and the Annexes I, II, 
III, V, VII. They shall forthwith communicate to the Commission the text of those provisions 
and a correlation table between those provisions and this Directive.  

They shall apply those provisions from 31 December 2006. 

When  Member  States  adopt  those  provisions,  they  shall  contain a  reference  to  this 
Directive or add such a reference ⌦ be accompanied by such a reference⌫ on the 
occasion  of  their  official  publication.  ⌦ They  shall  also  include  a  statement  that 
references  in  existing  laws,  regulations  and  administrative  provisions  to  these 
directives  repealed  by  this  Directive  shall  be  construed  as  references  to  this 
Directive. ⌫  The  manner  in  which  such  references  are  to  be  made  shall  be  laid 
down by the Member State. 

Member  States  shall  communicate  to  the  Commission  the  (cid:214) text  of the    main 

2. 
provisions of national law which they adopt in the field covered by this Directive. 

(cid:216) new 

Article 47 

Article 152(7) to (12) of Directive [2000/12/EC] shall apply mutatis mutandis for the 
1. 
purposes  of  this  Directive  subject  to  the  following  provisions  which  shall  apply  where  the 
discretion referred to in Article 152(7) of Directive [2000/12/EC] is exercised: 

(a)  References in Annex II paragraph 6 of Directive [2000/12/EC] shall be read as 
references  to  Directive  2000/12/EC  as  that  Directive  stood  prior  to  the  date 
referred to in Article 46; 

(b)  Annex II, paragraph 4.1, shall apply as it stood prior to the date referred to in 

Article 46. 

EN 

50 

   EN 

 
 
 
Article  157  (2)  of  Directive  [2000/12/EC]  shall  apply  mutatis  mutandis  for  the 

2. 
purposes of Articles 18 and 20. 

(cid:208) 93/6/EEC Art. 13 

Article 13 

The  Commission  shall  as  soon  as  possible  submit  to  the  Council  proposals  for  capital 
requirements  in  respect  of  commodities  trading,  commodity  derivatives  and  units  of 
collective-investment undertakings. 

The Council shall decide on the Commission's proposals no later than six months before the 
date of application of this Directive. 

(cid:216) new 

Article 48 

Directive 93/6/EEC, as amended by the Directives listed in  Annex  VIII, Part A, is repealed 
without  prejudice  to  the  obligations  of  the  Member  States  relating  to  the  time-limits  for 
transposition into national law of the Directives set out in Annex VIII, Part B. 

References  to  the  repealed  Directives  shall  be  construed  as  references  to  this  Directive  and 
shall be read in accordance with the correlation table in Annex IX. 

This Directive shall enter into force on the twentieth day following that of its publication in 
the Official Journal of the European Union. 

Article 49 

(cid:208) 93/6/EEC Art 14 

REVIEW CLAUSE 

Article 14 

Within  three  years  of  the  date  referred  to  in  Article  12,  acting  on  a  proposal  from  the 
Commission, the Council shall examine and, if necessary, revise this Directive in the light of 
the  experience  acquired  in  applying  it,  taking  into  account  market  innovation  and,  in 
particular, developments in international fora of regulatory authorities. 

EN 

51 

   EN 

 
 
 
 
(cid:208) 93/6/EEC Art. 15 

Article 50 

This Directive is addressed to the Member States. 

Done at Brussels, […] 

For the European Parliament 
The President 
[…] 

For the Council 
The President 
[…] 

(cid:208) 93/6/EEC (adapted) 
(cid:214) new 

ANNEX I 

(cid:214) CALCULATING CAPITAL REQUIREMENTS FOR  POSITION RISK 

INTRODUCTION ⌦ GENERAL PROVISIONS ⌫ 

Netting 

1.  The  excess  of  an  institution's  long  (short)  positions  over  its  short  (long)  positions  in  the 
same equity, debt and convertible issues and identical financial futures, options, warrants and 
covered warrants shall be its net position in each of those different instruments. In calculating 
the net position the competent authorities shall allow positions in derivative instruments to be 
treated, as laid down in paragraphs 4 to 7, as positions in the underlying (or notional) security 
or  securities.  Institutions'  holdings  of  their  own  debt  instruments  shall  be  disregarded  in 
calculating specific risk under paragraph 14 ⌦ 14 ⌫ . 

2.  No  netting  shall  be  allowed  between  a  convertible  and  an  offsetting  position  in  the 
instrument underlying it, unless the competent authorities adopt an approach under which the 
likelihood of a particular convertible's being converted is taken into account or have a capital 
requirement to cover any loss which conversion might entail. 

3.  All  net  positions,  irrespective  of  their  signs,  must  be  converted  on  a  daily  basis  into  the 
institution's reporting currency at the prevailing spot exchange rate before their aggregation. 

Particular instruments 

4. Interest-rate futures, forward-rate agreements (FRAs) and forward commitments to buy or 
sell debt instruments shall be treated as combinations of long and short positions. Thus a long 

(cid:208) 93/6/EC (adapted) 
(cid:206)1 98/31/EC Art. 1.7 and Annex 
.1(a) 

EN 

52 

   EN 

 
 
 
 
interest-rate futures position shall be treated as a combination of a borrowing maturing on the 
delivery date of the futures contract and a holding of an asset with maturity date equal to that 
of the instrument or notional position underlying the futures contract in question. Similarly a 
sold FRA will be treated as a long position with a maturity date equal to the settlement date 
plus the contract period, and a short position with maturity equal to the settlement date. Both 
the  borrowing  and  the  asset  holding  shall  be  included  in  the  central  government  column 
⌦ first category set out in ⌫ of Table 1 in paragraph 14 ⌦ 14 ⌫ in order to calculate the 
capital  required  against  specific  risk  for  interest-rate  futures  and  FRAs.  A  forward 
commitment  to  buy  a  debt  instrument  shall  be  treated  as  a  combination  of  a  borrowing 
maturing  on  the  delivery  date  and  a  long  (spot)  position  in  the  debt  instrument  itself.  The 
borrowing shall be included in the central government column ⌦ first category set out in ⌫ 
of Table 1 ⌦ in paragraph 14 ⌫for purposes of specific risk, and the debt instrument under 
whichever column is appropriate for it in the same table.(cid:206)1 ---  

(cid:208) 98/31/EC Art. 1.7 and Annex 
.1(a) (adapted) 

The competent authorities may allow the capital requirement for an exchange-traded future to 
be equal to the margin required by the exchange if they are fully satisfied that it provides an 
accurate measure of the risk associated with the future and that it is at least equal to the capital 
requirement for a future that would result from a calculation made using the method set out in 
this Annex or applying the internal models method described in Annex VIII.  

Until 31 December 2006 tThe competent authorities may also allow the capital requirement 
for an OTC derivatives contract of the type referred to in this paragraph cleared by a clearing 
house recognised by them to be equal to the margin required by the clearing house if they are 
fully satisfied that it provides an accurate measure of the risk associated with the derivatives 
contract and that it is at least equal to the capital requirement for the contract in question that 
would result from a calculation made using the method set out in the this Annex or applying 
the internal models method described in Annex VIII. 

For the purposes of this paragraph, long position means a position in which an institution has 
fixed  the  interest  rate  it  will  receive  at  some  time  in  the  future,  and  short  position  means  a 
position in which it has fixed the interest rate it will pay at some time in the future. 

(cid:208) 93/6/EEC Art. 2(22) 

(cid:208) 93/6/EEC 

5. Options on interest rates, debt instruments, equities, equity indices, financial futures, swaps 
and foreign currencies shall be treated as if they were positions equal in value to the amount 
of  the  underlying  instrument  to  which  the  option  refers,  multiplied  by  its  delta  for  the 
purposes of this Annex. The latter positions may be netted off against any offsetting positions 
in  the  identical  underlying  securities  or  derivatives.  The  delta  used  shall  be  that  of  the 
exchange  concerned,  that  calculated  by  the  competent  authorities  or,  where  that  is  not 
available or for OTC-options, that, calculated by the institution itself, subject to the competent 
authorities' being satisfied that the model used by the institution is reasonable. 

However, the competent authorities may also prescribe that institutions calculate their deltas 
using a methodology specified by the competent authorities. 

EN 

53 

   EN 

 
 
 
 
(cid:208) 98/31/EC Art. 1.7 and Annex 
.1(b) (adapted) 

The  competent  authorities  shall  require  that  the  oOther  risks,  apart  from  the  delta  risk, 
associated  with  options  are  ⌦ shall  be ⌫  safeguarded  against.  The  competent  authorities 
may allow the requirement against a written exchange-traded option to be equal to the margin 
required by the exchange if they are fully satisfied that it provides an accurate measure of the 
risk associated with the option and that it is at least equal to the capital requirement against an 
option that would result from a calculation made using the method set out in the remainder of 
this  Annex  or  applying  the  internal  models  method  described  in  Annex  VIII.  Until  31 
December  2006  tThe  competent  authorities  may  also  allow  the  capital  requirement  for  an 
OTC  option  cleared  by  a  clearing  house  recognised  by  them  to  be  equal  to  the  margin 
required by the clearing house if they are fully satisfied that it provides an accurate measure 
of the risk associated with the option and that it is at least equal to the capital requirement for 
an  OTC  option  that  would  result  from  a  calculation  made  using  the  method  set  out  in  the 
remainder of this Annex or applying the internal models method described in Annex VIII. In 
addition they may allow the requirement on a  bought exchange-traded or OTC option to be 
the  same  as  that  for  the  instrument  underlying  it,  subject  to  the  constraint  that  the  resulting 
requirement does not exceed the market value of the option. The requirement against a written 
OTC option shall be set in relation to the instrument underlying it. 

(cid:208) 98/31/EC Art. 1.7 and Annex 
.1(c) 

6.  Warrants  relating  to  debt  instruments  and  equities  shall  be  treated  in  the  same  way  as 
options under paragraph 5. 

(cid:208) 93/6/EEC 

7. Swaps shall be treated for interest-rate risk purposes on the same basis as on-balance-sheet 
instruments.  Thus  an  interest-rate  swap  under  which  an  institution  receives  floating-rate 
interest  and  pays  fixed-rate  interest  shall  be  treated  as  equivalent  to  a  long  position  in  a 
floating-rate instrument of maturity equivalent to the period until the next interest fixing and a 
short position in a fixed-rate instrument with the same maturity as the swap itself. 

(cid:216) new 

8.  For  credit  derivatives,  unless  specified  differently,  the  notional  amount  of  the  credit 
derivative contract must be used. When calculating the capital requirement for the market risk 
of the party who assumes the credit risk (the “protection seller”), positions are determined as 
follows: 

A  total  return  swap  creates  a  long  position  in  the  general  market  risk  of  the  reference 
obligation  and  a  short  position  in  the  general  market  risk  of  a  government  bond  which  is 
assigned a 0% risk weight under Annex VI of Directive [2000/12/EC]. It also creates a long 
position in the specific risk of the reference obligation. 

A credit default swap does not create a position for general market risk. For the purposes of 
specific  risk,  the  institution  must  record  a  synthetic  long  position  in  an  obligation  of  the 

EN 

54 

   EN 

 
 
 
 
 
reference entity. If premium or interest payments are due under the product, these cash flows 
must be represented as notional positions in a government bond with the appropriate fixed or 
floating rate. 

A credit linked note creates a long position in the general market risk of the note itself, as an 
interest  product.  For  the  purpose  of  specific  risk,  a  synthetic  long  position  is  created  in  an 
obligation of the reference entity. In addition, a long position is created in the specific risk of 
the issuer of the note. 

A  first-asset-to-default  basket  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 
capital  requirement  under  the  method  in  the  first  sentence  of  this  sub-paragraph,  the 
maximum payment amount may be taken as the capital requirement for specific risk. 

A  second-asset-to-default  basked  product  creates  a  position  for  the  notional  amount  in  an 
obligation  of  each  reference  entity  less  one  (that  with  the  lowest  specific  risk  capital 
requirement).  If  the  size  of  the  maximum  credit  event  payment  is  lower  than  the  capital 
requirement under the method in the first sentence of this sub-paragraph, this amount may be 
taken as the capital requirement for specific risk. 

Where a credit linked note basket product has an external rating and meets the conditions for 
a qualifying debt item, a single long position with the specific risk of the note issuer may be 
recorded instead of the specific risk positions for all reference entities. 

A basket product providing proportional protection creates a position in each reference entity 
for the purposes of specific risk, with the total notional amount of the contract assigned across 
the positions according to the proportion of the total notional amount that each exposure to a 
reference  entity  represents.  Where  more  than  one  obligation  of  a  reference  entity  can  be 
selected,  the  obligation  with  the  highest  risk  weighting  determines  the  specific  risk.  The 
maturity  of  the  credit  derivative  contract  is  applicable  instead  of  the  maturity  of  the 
obligation. 

For the party who transfers credit risk (the “protection buyer”), the positions are determined 
as the mirror image of the protection seller, with the exception of a credit linked note (which 
entails  no  short  position  in  the  issuer).  If  at  a  given  moment  there  is  a  call  option  in 
combination with a step-up, such moment is treated as the maturity of the protection. In the 
case of  the nth to default credit derivatives, protection buyers are allowed  to off-set specific 
risk for n-1 of the underlyings (i.e., the n-1 assets with the lowest specific risk charge). 

(cid:208) 93/6/EEC (adapted) 

89.  However,  iInstitutions  which  mark  to  market  and  manage  the  interest-rate  risk  on  the 
derivative instruments covered in paragraphs 4 to 7 on a discounted-cash-flow basis may use 
sensitivity models to calculate the positions referred to above and may use them for any bond 
which  is  amortizsed  over  its  residual  life  rather  than  via  one  final  repayment  of  principal. 
Both the model and its use by the institution must be approved by the competent authorities. 
These  models  should  generate  positions  which  have  the  same  sensitivity  to  interest-rate 
changes  as  the  underlying  cash  flows.  This  sensitivity  must  be  assessed  with  reference  to 
independent  movements  in  sample  rates  across  the  yield  curve,  with  at  least  one  sensitivity 
point  in  each  of  the  maturity  bands  set  out  in  Table  2  of  paragraph  18  ⌦ 20 ⌫  .  The 

EN 

55 

   EN 

 
 
positions  shall  be  included  in  the  calculation  of  capital  requirements  according  to  the 
provisions laid down in paragraphs 15 to 30 ⌦ 17 to 32 ⌫ . 

910.  Institutions  which  do  not  use  models  under  paragraph  8 ⌦ 9 ⌫may  instead,  with  the 
approval  of  the  competent  authorities,  treat  as  fully  offsetting  any  positions  in  derivative 
instruments covered in paragraphs 4 to 7 which meet the following conditions at least: 

(ia) 

the positions are of the same value and denominated in the same currency; 

(iib)  the  reference  rate  (for  floating-rate  positions)  or  coupon  (for  fixed-rate 

positions) is closely matched; 

(iiic)  the  next  interest-fixing  date  or,  for  fixed  coupon  positions,  residual  maturity 

corresponds with the following limits: 

(i) 

less than one month hence: same day,; 

(ii)  between one month and one year hence: within seven days,; 

(iii)  over one year hence: within 30 days. 

1011.  The  transferor  of  securities  or  guaranteed  rights  relating  to  title  to  securities  in  a 
repurchase  agreement  and  the  lender  of  securities  in  a  securities  lending  shall  include  these 
securities  in  the  calculation  of  its  capital  requirement  under  this  Annex  provided  that  such 
securities meet the criteria laid down in Article 2(6)(a) ⌦ 11 ⌫ . 

11.  Positions  in  units  of  collective-investment  undertakings  shall  be  subject  to  the  capital 
requirements  of  Directive  89/647/EEC  rather  than  to  position-risk  requirements  under  this 
Annex. 

(cid:208) 93/6/EEC (adapted) 

Specific and general risks 

12. The position risk on a traded debt instrument or equity (or debt or equity derivative) shall 
be divided into two components in order to calculate the capital required against it. The first 
shall  be  its  specific-risk  component  —  this  is  the  risk  of  a  price  change  in  the  instrument 
concerned due to factors related to its issuer or, in the case of a derivative, the issuer of the 
underlying instrument. The second component shall cover its general risk — this is the risk of 
a  price  change  in  the  instrument  due  (in  the  case  of  a  traded  debt  instrument  or  debt 
derivative)  to  a  change  in  the  level  of  interest  rates  or  (in  the  case  of  an  equity  or  equity 
derivative)  to  a  broad  equity-market  movement  unrelated  to  any  specific  attributes  of 
individual securities. 

TRADED DEBT INSTRUMENTS 

The institution shall classify its nNet positions ⌦ shall be classified ⌫ according to 
13. 
the  currency  in  which  they  are  denominated  and  shall  calculate  the  capital  requirement  for 
general and specific risk in each individual currency separately. 

EN 

56 

   EN 

 
 
Specific risk 

(cid:208) 93/6/EC 
(cid:214) new 

14. The institution shall assign its net positions, as calculated in accordance with paragraph 1, 
to  the  appropriate  categories  in  Table  1  on  the  basis  of  their  residual  maturities  and  then 
multiply  them  by  the  weightings  shown.  It  shall  sum  its  weighted  positions  (regardless  of 
whether  they  are  long  or  short)  in  order  to  calculate  its  capital  requirement  against  specific 
risk. (cid:214) in the trading book, as calculated in accordance with paragraph 1 to the appropriate 
categories  in  Table  1  on  the  basis  of  their  issuer/obligor,  external  or  internal  credit 
assessment, and residual maturity, and then multiply them by the weightings shown. It shall 
sum its weighted positions (regardless of whether they are long or short) in order to calculate 
its capital requirement against specific risk.  

Table 1 

Central government 
items 

(cid:208) 93/6/EEC 

Qualifying items 

Other items 

Up to 6 
months 

Over 6 and up to 24 
months 

Over 24 
months 

0,00 % 

0,25 % 

1,00 % 

1,60 % 

8,00 % 

Table 1 

Items 

(cid:216) new 

Specific risk capital charge 

0% 

Debt  securities  issued  or  guaranteed  by 
central governments, issued by central banks, 
international 
organisations,  multilateral 
development  banks  or  Member  States’ 
local  authorities 
regional  government  or 
which  would  receive  a  0%  risk  weighting 
under the RSA or IRB approaches.  

Debt  securities  issued  or  guaranteed  by 
central governments, issued by central banks, 
international 
organisations,  multilateral 
development  banks  or  Member  States’ 
regional  governments  or  local  authorities 
which  would  receive  a  20%  or  50%  risk 
weighting under the RSA 

0.25%  (residual  term  to  final  maturity  six 
months or less)  

1.00% (residual term to final maturity greater 
than  six  months  and  up  to  and  including  24 
months) 

Other  qualifying 

items  as  defined 

in 

1.60%  (residual  term  to  maturity  exceeding 

EN 

57 

   EN 

 
 
 
 
 
 
paragraph 15 below 

All others 

24 months) 

8.00% 

15. 

For the purposes of paragraph 14 qualifying items shall include: 

(a) 

(b) 

long  and  short  positions  in  assets  qualifying  for  a  credit  quality  step 
corresponding at least to investment grade in the mapping process described in 
Title V, Chapter 2, Section 3, Sub-section 1 of Directive [2000/12/EC]; 

long and short positions in assets which, because of the solvency of the issuer, 
have a PD which is not higher than that of the assets referred to under a) above, 
under the approach described in Title V, Chapter 2, Section 3, Sub-section 2 of 
Directive [2000/12/EC]; 

(c) 

long and short positions in assets for which a credit assessment by a nominated 
external  credit  assessment  institution  is  not  available  and  which  meet  the 
following conditions: 

(i) 

they are considered by the institutions concerned to be sufficiently liquid; 

(ii) 

their investment quality is, according to the institution’s own discretion, 
at least equivalent to that of the assets referred to under point a); 

(iii) 

they are listed on at least one regulated market in a Member State or on a 
stock  exchange  in  a  third  country  provided  that  the  exchange  is 
recognised by the competent authorities of the relevant Member State; 

(d) 

they are, subject to competent authorities discretion, long and short positions in 
assets  issued  by  institutions  subject  to  the  capital  adequacy  requirements  set 
forth in Directive [2000/12/EC]  

The  manner  in  which  the  debt  instruments  are  assessed  shall  be  subject  to  scrutiny  by  the 
competent  authorities,  which  shall  overturn  the  judgment  of  the  institution  if  they  consider 
that the instruments concerned are subject to too high a degree of specific risk to be qualifying 
items; 

16.  The  competent  authorities  shall  require  the  institution  to  apply  the  maximum  weighting 
shown  in  Table  1  to  instruments  that  show  a  particular  risk  because  of  the  insufficient 
solvency of the issuer of liquidity. 

(cid:208) 93/6/EEC 

General risk 

(a) Maturity-based 

1517.  The  procedure  for  calculating  capital  requirements  against  general  risk  involves  two 
basic  steps.  First,  all  positions  shall  be  weighted  according  to  maturity  (as  explained  in 

(cid:208) 93/6/EEC (adapted) 

EN 

58 

   EN 

 
 
 
paragraph  16 ⌦ 18 ⌫  ),  in  order  to  compute  the  amount  of  capital  required  against  them. 
Second, allowance shall be made for this requirement to be reduced when a weighted position 
is held alongside an opposite weighted position within the same maturity band. A reduction in 
the requirement shall also be allowed when the opposite weighted positions fall into different 
maturity bands, with the size of this reduction depending both on whether the two positions 
fall into the same zone, or not, and on the particular zones they fall into. There are three zones 
(groups of maturity bands) altogether. 

1618. The institution shall assign its net positions to the appropriate maturity bands in column 
2 or 3, as appropriate, in Table 2 appearing in paragraph 18 ⌦ 20 ⌫ . It shall do so on the 
basis of residual maturity in the case of fixed-rate instruments and on the basis of the period 
until the interest rate is next set in the case of instruments on which the interest rate is variable 
before final maturity. It shall also distinguish between debt instruments with a coupon of 3 % 
or  more  and  those  with  a  coupon  of  less  than  3 %  and  thus  allocate  them  to  column  2  or 
column 3 in Table 2. It shall then multiply each of them by the weighing for the maturity band 
in question in column 4 in Table 2. 

(cid:208) 93/6/EEC 

1719.  It  shall  then  work  out  the  sum  of  the  weighted  long  positions  and  the  sum  of  the 
weighted short positions in each maturity band. The amount of the former which are matched 
by  the  latter  in  a  given  maturity  band  shall  be  the  matched  weighted  position  in  that  band, 
while  the  residual  long  or  short  position  shall  be  the  unmatched  weighted  position  for  the 
same band. The total of the matched weighted positions in all bands then be calculated. 

1820. The institution shall compute the totals of the unmatched weighted long positions for 
the bands included in each of the zones in Table 2 in order to derive the unmatched weighted 
long position for each zone. Similarly the sum of the unmatched weighted short positions for 
each  band  in  a  particular  zone  shall  be  summed  to  compute  the  unmatched  weighted  short 
position for that zone. That part of the unmatched weighted long position for a given zone that 
is matched by the unmatched weighted short position for the same zone shall be the matched 
weighted  position  for  that  zone.  That  part  of  the  unmatched  weighted  long  or  unmatched 
weighted  short  position  for  a  zone  that  cannot  be  thus  matched  shall  be  the  unmatched 
weighted position for that zone. 

Table 2 

Zone 

Maturity band 

Weighting (in 
%) 

Assumed interest rate 
change (in %) 

Coupon of 3 % or 
more 

Coupon of less 
than 3 % 

One 

0 ≤ 1 month 

0 ≤ 1 month 

> 1 ≤ 3 months 

> 1 ≤ 3 months 

> 3 ≤ 6 months 

> 3 ≤ 6 months 

> 6 ≤ 12 months 

> 6 ≤ 12 months 

Two 

> 1 ≤ 2 years 

> 1,0 ≤ 1,9 years 

0.00

0.20

0.40

0.70

1.25

—

1.00

1.00

1.00

0.90

EN 

59 

   EN 

 
 
> 2 ≤ 3 years 

> 1,9 ≤ 2,8 years 

> 3 ≤ 4 years 

> 2,8 ≤ 3,6 years 

Three 

> 4 ≤ 5 years 

> 3,6 ≤ 4,3 years 

> 5 ≤ 7 years 

> 4,3 ≤ 5,7 years 

> 7 ≤ 10 years 

> 5,7 ≤ 7,3 years 

> 10 ≤ 15 years 

> 7,3 ≤ 9,3 years 

> 15 ≤ 20 years 

> 9,3 ≤ 10,6 years 

> 20 years 

> 10,6 ≤ 12,0 
years 

> 12,0 ≤ 20,0 
years 

> 20 years 

1.75

2.25

2.75

3.25

3.75

4.50

5.25

6.00

8.00

12.50

0.80

0.75

0.75

0.70

0.65

0.60

0.60

0.60

0.60

0.60

(cid:208) 93/6/EC (adapted) 

1921.  The  amount  of  the  unmatched  weighted  long  (short)  position  in  zone  one  which  is 
matched by the unmatched weighted short (long) position in zone two shall then be computed. 
This shall be referred to in paragraph 23 ⌦ 25⌫ as the matched weighted position between 
zones one and two. The same calculation shall then be undertaken with regard to that part of 
the unmatched weighted position in zone two which is left over and the unmatched weighted 
position in zone three in order to calculate the matched weighted position between zones two 
and three. 

2022. The institution may, if it wishes, reverse the order in paragraph 19 ⌦ 21 ⌫ so as to 
calculate the matched weighted position between zones two and three before working out that 
between zones one and two. 

(cid:208) 93/6/EEC (adapted) 

2123. The remainder of the unmatched weighted position in zone one shall then be matched 
with what remains of that for zone three after the latter's matching with zone two in order to 
derive the matched weighted position between zones one and three. 

2224. Residual positions, following the three separate matching calculations in paragraphs 19, 
20 and 21 ⌦ 21, 22 and 23, ⌫ shall be summed. 

2325. The institution's capital requirement shall be calculated as the sum of: 

(a) 

(b) 

EN 

10 % of the sum of the matched weighted positions in all maturity bands; 

40 % of the matched weighted position in zone one; 

60 

   EN 

 
 
 
 
 
(c) 

(d) 

(e) 

(f) 

(g) 

30 % of the matched weighted position in zone two; 

30 % of the matched weighted position in zone three; 

40 %  of  the  matched  weighted  position  between  zones  one  and  two  and  between 
zones two and three (see paragraph 19 ⌦ 21 ⌫ ); 

150 % of the matched weighted position between zones one and three; 

100 % of the residual unmatched weighted positions. 

(b) Duration-based 

2426. The competent authorities in a Member State may allow institutions in general or on an 
individual basis to use a system for calculating the capital requirement for the general risk on 
traded debt instruments which reflects duration instead of the system set out in paragraphs 15 
to 23 ⌦ 17 to 25 ⌫ , provided that the institution does so on a consistent basis. 

(cid:208) 93/6/EC (adapted) 

2527.  Under  such  a  system ⌦ referred  to  in  paragraph  26 ⌫  the  institution  shall  take  the 
market  value  of  each  fixed-rate  debt  instrument  and  thence  calculate  its  yield  to  maturity, 
which is implied discount rate for that instrument. In the case of floating-rate instruments, the 
institution shall take the market value of each instrument and thence calculate its yield on the 
assumption that the principal is due when the interest rate can next be changed. 

2628. The institution shall then calculate the modified duration of each debt instrument on the 
basis of the following formula: modified duration = ((duration (D))/(1 + r)), where: 

(cid:208) 93/6/EEC 

D 

= 

m((t Ct)/((1 + r)t)))/(∑t = 

((∑t = 1
m((Ct)/((1 + r)t)))) 
1

where: 

R 

Ct 

M 

= 

= 

= 

yield to maturity (see paragraph 25), 

cash payment in time t, 

total maturity (see paragraph 25). 

2729. The institution shall then allocate each debt instrument to the appropriate zone in Table 
3. It shall do so on the basis of the modified duration of each instrument. 

Table 3 

Zone 

Modified duration 

Assumed interest 

EN 

61 

   EN 

 
 
 
 
(in years) 

(change in %) 

One 

> 0 ≤ 1,0 

Two 

> 1,0 ≤ 3,6 

Three 

> 3,6 

1.0 

0.85 

0.7 

2830. The institution shall then calculate the duration-weighted position for each instrument 
by  multiplying  its  market  price  by  its  modified  duration  and  by  the  assumed  interest-rate 
change for an instrument with that particular modified duration (see column 3 in Table 3). 

2931.  The  institution  shall  work  out  its  duration-weighted  long  and  its  duration-weighted 
short positions within each zone. The amount of the former which are matched by the latter 
within each zone shall be the matched duration-weighted position for that zone. 

The institution shall then calculate the unmatched duration-weighted positions for each zone. 
It shall then follow the procedures laid down for unmatched weighted positions in paragraphs 
19 to 22 ⌦ 21 to 24 ⌫ . 

(cid:208) 93/6/EEC (adapted) 

(cid:208) 93/6/EC 

3032. The institution's capital requirement shall then be calculated as the sum of: 

(a) 

(b) 

(c) 

(d) 

2 % of the matched duration-weighted position for each zone; 

40 %  of  the  matched  duration-weighted  positions  between  zones  one  and  two  and 
between zones two and three; 

150 % of the matched duration-weighted position between zones one and three; 

100 % of the residual unmatched duration-weighted positions. 

EQUITIES 

3133.  The  institution  shall  sum  all  its  net  long  positions  and  all  its  net  short  positions  in 
accordance with paragraph 1. The sum of the two figures shall be its overall gross position. 
The difference between them shall be its overall net position. 

EN 

62 

   EN 

 
 
 
 
Specific risk 

(cid:208) 93/6/EEC 
(cid:214) new 

32.34(cid:214) The  institution  shall  sum  all  its  net  long  positions  and  all  its  net  short  positions  in 
accordance with paragraph 1.  It shall multiply its overall gross position by 4 % in order to 
calculate its capital requirement against specific risk. 

3335.  Notwithstanding  paragraph  35  ⌦ By  derogation  to  paragraph  34 ⌫,  the  competent 
authorities may allow the capital requirement against specific risk to be 2% rather than 4% for 
those portfolios of equities that an institution holds which meet the following conditions: 

(cid:208) 93/6/EC (adapted) 

(cid:208) 98/31/EC Art. 1.7 and Annex 
.1(d) (adapted) 

(ia) 

the  equities  shall  not  be  those  of  issuers  which  have  issued  only  traded  debt 
instruments  that  currently  attract  an  8 %  requirement  in  Table  1  appearing  in 
paragraph 14 or that attract a lower requirement only because they are guaranteed or 
secured; 

(iib) 

the equities must be adjudged highly liquid by the competent authorities according to 
objective criteria; 

(cid:208) 93/6/EEC 

(cid:208) 93/6/EEC (adapted) 

(iiic) 

no individual position shall comprise more than 5 % of the value of the institution's 
whole equity portfolio. However  

⌦ For  the  purpose  of  point  (c) ⌫,  the  competent  authorities  may  authorizse 
individual positions of up to 10 % provided that the total of such positions does not 
exceed 50 % of the portfolio. 

General risk 

(cid:208) 93/6/EEC 

3436. Its capital requirement against general risk shall be its overall net position multiplied by 
8 %. 

EN 

63 

   EN 

 
 
 
 
 
 
 
Stock-index futures 

(cid:208) 93/6/EEC (adapted) 

3537.  Stock-index  futures,  the  delta-weighted  equivalents  of  options  in  stock-index  futures 
and  stock  indices  collectively  referred  to  hereafter  as  «stock-index  futures»,  may  be  broken 
down  into  positions  in  each  of  their  constituent  equities.  These  positions  may  be  treated  as 
underlying  positions  in  the  equities  in  question,;  therefore  ⌦ and  may ⌫,  subject  to  the 
approval  of  the  competent  authorities,  they  may  be  netted  against  opposite  positions  in  the 
underlying equities themselves. 

(cid:208) 93/6/EEC 

3638.  The  competent  authorities  shall  ensure  that  any  institution  which  has  netted  off  its 
positions in one or more of the equities constituting a stock-index future against one or more 
positions in the stock-index future itself has adequate capital to cover the risk of loss caused 
by the future's values not moving fully in line with that of its constituent equities; they shall 
also do this when an institution holds opposite positions in stock-index futures which are not 
identical in respect of either their maturity or their composition or both. 

(cid:208) 93/6/EEC (adapted) 

3739.  Notwithstanding  ⌦ By  derogation  to ⌫  paragraphs  35  and  36  ⌦ 37  and  38 ⌫, 
stock-index  futures  which  are  exchange  traded  and  —  in  the  opinion  of  the  competent 
authorities — represent broadly diversified indices shall attract a capital requirement against 
general risk of 8 %, but no capital requirement against specific risk. Such stock-index futures 
shall be included in the calculation of the overall net position in paragraph 31 ⌦ 33 ⌫, but 
disregarded in the calculation of the overall gross position in the same paragraph. 

3840.  If  a  stock-index  future  is  not  broken  down  into  its  underlying  positions,  it  shall  be 
treated as if it were an individual equity. However, the specific risk on this individual equity 
can be ignored if the stock-index future in question is exchange traded and, in the opinion of 
the competent authorities, represents a broadly diversified index. 

(cid:208) 93/6/EEC 

UNDERWRITING 

(cid:208) 93/6/EEC (adapted) 

3941. In the case of the underwriting of debt and equity instruments, the competent authorities 
may allow an institution to use the following procedure in calculating its capital requirements. 
Firstly, it shall calculate the net positions by deducting the underwriting positions which are 
subscribed or sub-underwritten by third parties on the basis of formal agreements; secondly. 
Secondly,  it  shall  reduce  the  net  positions  by  the  following  reduction  factors:  ⌦ in  Table 
4 ⌫ 

Table 4 

EN 

64 

   EN 

 
 
 
 
 
 
— working day 0: 

100 % 

— working day 1: 

90 % 

— working days 2 to 
3: 

75 % 

— working day 4: 

50 % 

— working day 5: 

25 % 

— after working day 
5: 

0 %. 

(cid:208) 93/6/EEC 

Working day zero shall be the working day on which the institution becomes unconditionally 
committed to accepting a known quantity of securities at an agreed price. 

Thirdly, it shall calculate its capital requirements using the reduced underwriting positions. 

The competent authorities shall ensure that the institution holds sufficient capital against the 
risk of loss which exists between the time of the initial commitment and working day 1. 

(cid:216) new 

SPECIFIC  RISK  CAPITAL  CHARGES  FOR  TRADING  BOOK  POSITIONS 
HEDGED BY CREDIT DERIVATIVES 

42. An allowance shall be given for protection provided by credit derivatives, in accordance 
with the principles set out in paragraphs 43 to 46. 

43.  Full  allowance  shall  be  given  when  the  value  of  two  legs  always  move  in  the  opposite 
direction  and  broadly  to  the  same  extent.  This  will  be  the  case  in  either  of  the  following 
situations: 

(a) 

the two legs consist of completely identical instruments; 

(b) 

a long cash position is hedged by a total rate of return swap (or vice versa) and 
there  is  an  exact  match  between  the  reference  obligation  and  the  underlying 
exposures  (i.e.,  the  cash  position).  The  maturity  of  the  swap  itself  may  be 
different from that of the underlying exposure. 

In  these  cases,  a  specific  risk  capital  charge  should  not  be  applied  to  either  side  of  the 
position. 

44. An 80% offset will 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 should not cause the price 
movement of the credit derivative to materially deviate from the price movements of the cash 

EN 

65 

   EN 

 
 
 
position. To the extent that the transaction transfers risk, an 80% specific risk offset will be 
applied  to  the  side  of  the  transaction  with  the  higher  capital  charge,  while  the  specific  risk 
requirements on the other side shall be zero. 

45. Partial allowance shall be given when the value of two legs usually move in the opposite 
direction. This would be the case in the following situations: 

(a) 

the  position  is  captured  in  paragraph  43(b)  but  there  is  an  asset  mismatch 
between  the  reference  obligation  and  the  underlying  exposure.  However,  the 
positions meet the following requirements: 

(i) 

the  reference  obligation  ranks  pari  passu  with  or  is  junior  to  the 
underlying obligation;  

(ii) 

the underlying obligation and reference obligation share the same obligor 
and have legally enforceable cross-default or cross-acceleration clauses; 

(b) 

the  position  is  captured  in  paragraph  43(a)  or  paragraph  44  but  there  is  a 
currency  or  maturity  mismatch  between  the  credit  protection  and  the 
underlying  asset  (currency  mismatches  should  be  included  in  the  normal 
reporting foreign exchange risk under Annex III; 

(c) 

the position is captured in paragraph 44 but there is an asset mismatch between 
the  cash  position  and  the  credit  derivative.  However,  the  underlying  asset  is 
included in the (deliverable) obligations in the credit derivative documentation. 

In each of those cases, rather than adding the specific risk capital requirements for each side 
of the transaction, only the higher of the two capital requirements shall apply. 

46. In all cases not falling under paragraph 45, a specific risk capital charge will be assessed 
against both sides of the position. 

CAPITAL CHARGES FOR CIUS IN THE TRADING BOOK 

47. The capital requirements for positions in collective investment undertakings (CIUs) which 
meet  the  conditions  specified  in  Article  11  for  a  trading  book  capital  treatment,  shall  be 
calculated in accordance with the methods set out in paragraphs 48 to 56. 

48. Without prejudice to other provisions in this section, positions in CIUs shall be subject to 
a  capital  requirement  for  position  risk  (specific  and  general)  of  32%.  Without  prejudice  to 
provisions in Annex III (3)(i) or Annex V (13)(v), where the modified gold treatment set out 
in  those  paragraphs  is  used,  positions  in  CIUs  shall  be  subject  to  a  capital  requirement  for 
position risk (specific and general) and foreign-exchange risk of no more than 40%. 

49. Institutions may determine the capital requirement for positions in CIUs which meet the 
criteria set out in paragraph 51, by the methods set out in paragraphs 53 to 56. 

50. Unless noted otherwise, no netting is permitted between the underlying investments of a 
CIU and other positions held by the institution. 

GENERAL CRITERIA 

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51.  The  general  eligibility  criteria  for  using  the  methods  in  paragraphs  53  to  56,  for  CIUs 
issued by companies supervised or incorporated within the Community are that: 

(a) 

the CIU’s prospectus or equivalent document shall include: 

(i) 

the categories of assets the CIU is authorised to invest in; 

(ii) 

if  investment  limits  apply,  the  relative  limits  and  the  methodologies  to 
calculate them; 

(iii) 

if leverage is allowed, the maximum level of leverage; 

(iv) 

if investment in OTC financial derivatives or repo-style transactions are 
allowed,  a  policy  to  limit  counterparty  risk  arising  from  these 
transactions; 

(b) 

the business of the CIU shall be reported in half-yearly and annual reports to 
enable  an  assessment  to  be  made  of  the  assets  and  liabilities,  income  and 
operations over the reporting period; 

(c) 

the  units/shares  of  the  CIU  are  redeemable  in  cash,  out  of  the  undertaking’s 
assets, on a daily basis at the request of the unit holder; 

(d) 

investments in the CIU shall be segregated from the assets of the CIU manager; 

(e) 

there shall be adequate risk assessment, by the investing institution, of the CIU. 

52. Third country CIUs may be eligible if the requirements in points (a) to (e) of paragraph 51 
are met, subject to the approval of the institution’s competent authority. 

SPECIFIC METHODS 

53. Where the institution is aware of the underlying investments of the CIU on a daily basis 
the  institution  may  look  through  to  those  underlying  investments  in  order  to  calculate  the 
capital requirements for position risk (general and specific) for those positions in accordance 
with the methods set out in this Annex or, if permission has been granted, in accordance with 
the  methods  set  out  in  Annex  V.  Under  this  approach,  positions in  CIUs  shall  be treated as 
positions in the underlying investments of the CIU. Netting is permitted between positions in 
the underlying investments of the CIU and other positions held by the institution, as long as 
the institution holds a sufficient quantity of units to allow for redemption/creation in exchange 
for the underlying investments. 

54. Institutions may calculate the capital requirements for position risk (general and specific) 
for positions in CIUs in accordance with the methods set out in this Annex or, if permission 
has been granted, in accordance with the methods set out in Annex V, to assumed positions 
representing  those  necessary  to  replicate  the  composition  and  performance  of  the  externally 
generated index or fixed basket of equities or debt securities referred to in (a), subject to the 
following conditions: 

(a) 

the  purpose  of  the  CIU’s  mandate  is  to  replicate  the  composition  and 
performance of an externally generated index or fixed basket of equities or debt 
securities;  

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(b) 

a minimum correlation of 0.9 between daily price movements of the CIU and 
the  index  or  basket  of  equities  or  debt  securities  it  tracks  can  be  clearly 
established over a minimum period of six  months.  Correlation  in  this  context 
means the correlation coefficient between daily returns on the exchange traded 
fund and the index or basket of equities or debt securities it tracks. 

55.  Where  the  institution  is  not  aware  of  the  underlying  investments  of  the  CIU  on  a  daily 
basis,  the  institution  may  calculate  the  capital  requirements  for  position  risk  (general  and 
specific)  in  accordance  with  the  methods  set  out  in  this  Annex,  subject  to  the  following 
conditions: 

(a) 

(b) 

it  will  be  assumed  that  the  CIU  first  invests  to  the  maximum  extent  allowed 
under its mandate in the asset classes attracting the highest capital requirement 
for position risk (general and specific), and then continues making investments 
in descending order until the maximum total investment limit is reached. The 
position in the CIU will be treated as a direct holding in the assumed position; 

institutions  shall  take  account  of  the  maximum  indirect  exposure  that  they 
could achieve by taking leveraged positions through the CIU when calculating 
their  capital  requirement  for  position  risk,  by  proportionally  increasing  the 
position in the CIU up to the maximum exposure to the underlying investment 
items resulting from the investment mandate; 

(c) 

should  the  capital  requirement  for  position  risk  (general  and  specific)  under 
this approach exceed that set out in paragraph 48, the capital requirement shall 
be capped at that level. 

56.  Institutions  may  rely  on  a  third  party  to  calculate  and  report  capital  requirements  for 
position risk (general and specific) for positions in CIUs falling within paragraphs 53 and 55, 
in  accordance  with  the  methods  set  out  in  this  Annex,  provided  that  the  correctness  of  the 
calculation and the report is adequately ensured. 

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(cid:208) 93/6/EEC (adapted) 

ANNEX II 

⌦ CALCULATING CAPITAL REQUIREMENTS FOR ⌫ SETTLEMENT AND 
COUNTER-PARTY RISK 

SETTLEMENT/DELIVERY RISK 

(cid:208) 98/31/EC Art. 1.7 and Annex 
.2(a) 

1. In the case of transactions in which debt instruments, equities and commodities (excluding 
repurchase  and  reverse  repurchase  agreements  and  securities  or  commodities  lending  and 
securities  or  commodities  borrowing)  are  unsettled  after  their  due  delivery  dates,  an 
institution  must  calculate  the  price  difference  to  which  it  is  exposed.  This  is  the  difference 
between the agreed settlement price for the debt instrument, equity or commodity in question 
and its current market value, where the difference could involve a loss for the institution. It 
must multiply this difference by the appropriate factor in column A of the table appearing in 
paragraph 2 in order to calculate its capital requirement. 

(cid:208) 93/6/EEC (adapted) 

2. Notwithstanding ⌦ By derogation to ⌫ paragraph 1, an institution may, at the discretion 
of  its  competent  authorities,  calculate  its  capital  requirements  by  multiplying  the  agreed 
settlement price of every transaction which is unsettled between 5 and 45 working days after 
its due date by the appropriate factor in column B of the tTable 1below. As from 46 working 
days  after  the  due  date  it  shall  take  the  requirement  to  be  100 %  of  the  price  difference  to 
which it is exposed as in column A ⌦ of Table 1⌫ . 

⌦ Table 1 ⌫ 

Number of working days after due settlement date 

Column A 

Column B 

5 — 15 

16 — 30 

31 — 45 

46 or more 

(%) 

(%) 

8

50

75

0.5

4.0

9.0

100 see paragraph 2 

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COUNTER-PARTY RISK 

3.  An  institution  shall  be  required  to  hold  capital  against  the  counterparty  risk  arising  from 
exposures due to the following: 

(cid:216) new 

(a) 

free deliveries; 

(b)  OTC derivative instruments and credit derivatives;  

(c)  Repurchase  agreements, 

repurchase  agreements,  securities  or 
commodities  lending  or  borrowing  transactions  based  on  securities  or 
commodities included in the trading book; 

reverse 

(d) 

exposures  in  the  form  of  fees,  commission,  interest  dividends  and  margin  in 
exchange-traded  derivative  contracts  which  are  neither  covered  in  this  Annex 
or Annex I, nor deducted from own funds under paragraph 2(d) of Article 13, 
and which are directly related to the items included in the trading book. 

4.  For  these  purposes  a  free-delivery  will  be  deemed  to  have  occurred  if  the  institution  has 
paid  for  securities  or  commodities  before  receiving  them  or  it  has  delivered  securities  or 
commodities before receiving payment for them, and, in the case of cross-border transactions, 
one day or more has elapsed since it made that payment or delivery. 

5. Subject to paragraphs 6 to 9, exposure values and risk-weighted exposure amounts for such 
exposures shall be calculated in accordance with the provisions of Title V, Chapter 2, Section 
3 of Directive [2000/12/EC] with references to ‘credit institutions’ in that Section interpreted 
as  references  to  ‘institutions’,  references  to  ‘parent  credit  institutions’  interpreted  as 
references to ‘parent institutions’, and with concomitant terms interpreted accordingly. 

6. For the purposes of paragraph 5: 

Annex IV to Directive [2000/12/EC] shall be considered to be amended to include after point 
3(d) the words ‘and credit derivatives’; 

Annex III to Directive [2000/12/EC] shall be considered to be amended to include after Table 
1(a): 

To obtain a figure for potential future credit exposure in the case of total return swap 
credit derivatives and credit default swap credit derivatives, the nominal amount of 
the instrument is multiplied by the following percentages: 

Where the reference obligation is one that if it gave rise to a direct exposure of the 
institution would be a qualifying item for the purposes of Annex I - 5%; 

Where the reference obligation is one that if it gave rise to a direct exposure of the 
institution would not be a qualifying item for the purposes of Annex I - 10%. 

However, in the case of a credit default  swap, an institution the exposure of which 
arising from the swap represents a long position in the underlying shall be permitted 
to  use  a  figure  of  0%  for  potential  future  credit  exposure,  unless  the  credit  default 

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swap is subject to closeout upon the insolvency of the entity the exposure of which 
arising from the swap represents a short position in the underlying, even though the 
underlying has not defaulted.” 

Where  the  credit  derivative  provides  protection  in  relation  to  ‘nth  to  default’  amongst  a 
number of underlying obligations, which of the percentage figures prescribed above is to be 
applied  is  determined  by  the  obligation  with  the  nth  lowest  credit  quality  determined  by 
whether it is one that if incurred by the institution would be a qualifying item for the purposes 
of Annex I.’ 

7. For the purposes of paragraph 5, in calculating risk-weighted exposure amounts institutions 
shall not be permitted to use the Financial Collateral Simple Method, set out in Annex VIII, 
Part  3,  paragraphs  25  to  30  of  Directive  [2000/12/EC],  for  the  recognition  of  the  effects  of 
financial collateral. 

8.  For  the  purposes  of  paragraph  5,  in  the  case  of  repurchase  transactions  and  securities  or 
commodities  lending  or  borrowing  transactions,  all  financial  instruments  and  commodities 
that are eligible  to  be included  in  the  trading  book  may  be  recognised as eligible collateral. 
For  exposures  due  to  OTC  derivative  instruments  booked  in  the  trading  book,  commodities 
that  are  eligible  to  be  included  in  the  trading  book  may  also  be  recognised  as  eligible 
collateral.  For  the  purposes  of  calculating  volatility  adjustments  where  such  financial 
instruments or commodities are lent, sold or provided, or borrowed, purchased or received by 
way  of  collateral  or  otherwise  under  such  a  transaction  such  instruments  and  commodities 
shall be treated in the same way as non-main index equities listed on a recognised exchange. 

9. For the purposes of paragraph 5, in relation to the recognition of master netting agreements 
covering  repurchase  transactions  and/or  securities  or  commodities  lending  or  borrowing 
transactions  and/or  other  capital  market-driven  transactions  netting  across  positions  in  the 
trading book and the non-trading book will only be recognised when the netted transactions 
fulfil the following conditions: 

(a) 

all transactions are marked to market daily; 

(b) 

any items lent, sold or provided, or borrowed, purchased or received under the 
transactions  may  be  recognised  as  eligible  financial  collateral  under  Title  V, 
Chapter  2,  Section  3,  Sub-section  3  of  Directive  [2000/12/EC]  without  the 
application of paragraph 8 of this Annex. 

10. Where a credit derivative included in the trading book forms part of an internal hedge and 
the credit protection is recognised under Directive [2000/12/EC], there shall be deemed not to 
be counterparty risk arising from the position in the credit derivative. 

11. The capital requirement shall be 8% of the total risk-weighted exposure amounts. 

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Free deliveries 

(cid:208) 93/6/EEC 

(cid:208) 98/31/EC Art. 1.7 and Annex 
.2(b) 

3.1. An institution shall be required to hold capital against counterparty risk if: 

(i) 

it  has  paid  for  securities  or  commodities  before  receiving  them  or  it  has  delivered 
securities or commodities before receiving payment for them; 

and 

(ii) 

in the case of cross-border transactions, one day or more has elapsed since it made 
that payment or delivery. 

3.2. The capital requirement shall be 8 % of the value of the securities or commodities or cash 
owed  to  the  institution  multiplied  by  the  risk  weighting  applicable  to  the  relevant 
counterparty. 

(cid:208) 98/31/EC Art. 1.7 and Annex 
.2(c) 

Repurchase and reverse repurchase agreements, securities or commodities lending and 

borrowing 

4.1.  In  the  case  of  repurchase  agreements  and  securities  or  commodities  lending  based  on 
securities  or  commodities  included  in  the  trading  book  the  institution  shall  calculate  the 
difference  between  the  market  value  of  the  securities  or  commodities  and  the  amount 
borrowed  by  the  institution  or  the  market  value  of  the  collateral,  where  that  difference  is 
positive.  In  the  case  of  reverse  repurchase  agreements  and  securities  or  commodities 
borrowing, the institution shall calculate the difference between the amount the institution has 
lent or the market value of the collateral and the market value of the securities or commodities 
it has received, where that difference is positive. 

(cid:208) 93/6/EEC 

The  competent  authorities  shall  take  measures  to  ensure  that  the  excess  collateral  given  is 
acceptable. 

Furthermore,  the  competent  authorities  may  allow  institutions  not  to  include  the  amount  of 
excess collateral in the calculations described in the first two sentences of this paragraph if the 
amount of excess collateral is guaranteed in such a way that the transferor is always assured 
that the excess collateral will be returned to it in the event of defaults of its counter-party. 

Accrued  interest  shall  be  included  in  calculating  the  market  value  of  amounts  lent  or 
borrowed and collateral. 

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4.2. The capital requirement shall be 8 % of the figure produced in accordance with paragraph 
4.1, multiplied by the risk weighting applicable to the relevant counter-party. 

OTC derivative instruments 

(cid:208) 98/33/EC Art. 3.2 

5.  In  order  to  calculate  the  capital  requirement  on  their  OTC  derivative  instruments, 
institutions shall apply Article II to Directive 89/647/EEC. The risk weightings to be applied 
to  the  relevant  counterparties  shall  be  determined  in  accordance  with  Article  2(9)  of  this 
Directive. 

Until 31 December 2006, the competent authorities of Member States may exempt from the 
application  of  the  methods  set  out  in  Annex  II  OTC  contracts  cleared  by  a  clearing  house 
where the latter acts as the legal counterparty and all participants fully collateralise on a daily 
basis the exposure they present to the clearing house, thereby providing a protection covering 
both the current exposure and the potential future exposure. The competent authorities must 
be  satisfied  that  the  posted  collateral  gives  the  same  level  of  protection  as  collateral  which 
complies with Article 6(1)(a)(7) of Directive 89/647/EEC and that the risk of a build-up of the 
clearing  house's  exposures  beyond  the  market  value  of  posted  collateral  is  eliminated. 
Member States shall inform the Commission of the use they make of this option. 

(cid:208) 93/6/EEC 

OTHER 

6.  The  capital  requirements  of  Directive  89/647/EEC  shall  apply  to  those  exposures  in  the 
form  of  fees,  commission,  interest,  dividends  and  margin  in  exchange-traded  futures  or 
options contracts which are neither covered in this Annex or Annex I nor deducted from own 
funds under paragraph 2 (d) of Annex V and which are directly related to the items included 
in the trading book 

The  risk  weightings  to  be  applied  to  the  relevant  counter-parties  shall  be  determined  in 
accordance with Article 2 (9) of this Directive. 

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(cid:208) 93/6/EEC (adapted) 

ANNEX III 

⌦ CALCULATING CAPITAL REQUIREMENTS FOR ⌫ FOREIGN-EXCHANGE 
RISK 

(cid:208) 98/31/EC Art. 1.7 and Annex 
.3(a) (adapted) 

1. If the sum of an institution's overall net foreign-exchange position and its net gold position, 
calculated  in  accordance  with  the  procedure  set  out  below ⌦ in  paragraph  2 ⌫  ,  exceeds 
2 % of its total own funds, it shall multiply the sum of its net foreign-exchange position and 
its net gold position by 8 % in order to calculate its own-funds requirement against foreign-
exchange risk. 

Until 31 December 2004, the competent authorities may allow institutions to calculate their 
own-funds requirement by multiplying by 8 % the amount by which the sum of the overall net 
foreign-exchange position and the net gold position exceeds 2 % of the total own funds. 

2.  A  two-stage  calculation  shall  be  used  ⌦ for  capital  requirements  for  foreign-exchange 
risk ⌫. 

(cid:208) 93/6/EEC (adapted) 

(cid:208) 98/31/EC Art. 1.7 and Annex 
.3(b) (adapted) 

32.1.  Firstly,  the  institution's  net  open  position  in  each  currency  (including  the  reporting 
currency) and in gold shall be calculated. 

This ⌦ net open ⌫ position shall consist of the sum of the following elements (positive or 
negative): 

-(a) 

-(b) 

the  net  spot  position  (i.e.  all  asset  items  less  all  liability  items,  including 
accrued interest, in the currency in question or, for gold, the net spot position in 
gold), 

the net forward position (i.e. all amounts to be received less all amounts to be 
paid  under  forward  exchange  and  gold  transactions,  including  currency  and 
gold  futures  and  the  principal  on  currency  swaps  not  included  in  the  spot 
position), 

-(c) 

irrevocable  guarantees  (and  similar  instruments)  that  are  certain  to  be  called 
and likely to be irrecoverable, 

-(d)  net  future  income/expenses  not  yet  accrued  but  already  fully  hedged  (at  the 
discretion  of  the  reporting  institution  and  with  the  prior  consent  of  the 
competent  authorities,  net  future 
in 
accounting  records  but  already  fully  hedged  by  forward  foreign-exchange 

income/expenses  not  yet  entered 

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transactions  may  be  included  here).  Such  discretion  must  be  exercised  on  a 
consistent basis, 

-(e) 

the  net  delta  (or  delta-based)  equivalent  of  the  total  book  of  foreign-currency 
and gold options, 

-(f) 

the market value of other (i.e. non-foreign-currency and non-gold) options,. 

- aAny positions which an institution has deliberately taken in order to hedge against 
the adverse effect of the exchange rate on its capital ratio may be excluded from the 
calculation of net open currency positions. Such positions should be of a non-trading 
or  structural  nature  and  their  exclusion,  and  any  variation  of  the  terms  of  their 
exclusion, shall require the consent of the competent authorities. The same treatment 
subject  to  the  same  conditions  as  above  may  be  applied  to  positions  which  an 
institution  has  which  relate  to  items  that  are  already  deducted  in  the  calculation  of 
own funds. 

(cid:216) new 

For the  purposes  of  the  calculation  referred  to  in  the  first  sub-paragraph,  in  respect 
of CIUs the actual foreign exchange positions of the CIU shall be taken into account. 
Institutions may rely on third party reporting of the foreign exchange positions in the 
CIU,  where  the  correctness  of  this  report  is  adequately  ensured.  If  an  institution  is 
not  aware  of  the  foreign  exchange  positions  in  a  CIU,  it  shall  be  assumed  that  the 
CIU  is  invested  up  to  the  maximum  extent  allowed  under  the  CIU’s  mandate  in 
foreign  exchange  and  institutions  shall,  for  trading  book  positions,  take  account  of 
the maximum indirect exposure that they could achieve by taking leveraged positions 
through  the  CIU  when  calculating  their  capital  requirement  for  foreign  exchange 
risk. This shall be done by proportionally increasing the position in the CIU up to the 
maximum exposure to the underlying investment items resulting from the investment 
mandate. The assumed position of the CIU in foreign exchange shall be treated as a 
separate  currency  according  to  the  treatment  of  investments  in  gold,  subject  to  the 
modification that, if the direction of the CIU's investment is available, the total long 
position may be added to the total long open foreign exchange position and the total 
short position may be added to the total short open foreign exchange position. There 
would be no netting allowed between such positions prior to the calculation. 

3.2  The  competent  authorities  shall  have  the  discretion  to  allow  institutions  to  use  the  net 
present value when calculating the net open position in each currency and in gold. 

(cid:208) 98/31/EC Art. 1.7 and Annex 
.3(b) 

(cid:208) 93/6/EEC 
(cid:206)1 98/31/EC Art. 1.7 and Annex 
.3(c) 

(cid:206)1 42.2.  Secondly,  net  short  and  long  positions  in  each  currency  other  than  the  reporting 
currency  and  the  net  long  or  short  position  in  gold  shall  be  converted  at  spot  rates  into  the 
reporting currency.  They shall then be summed separately to form the total of the net short 

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positions  and  the  total  of  the  net  long  positions  respectively.  The  higher  of  these  two  totals 
shall be the institution's overall net foreign-exchange position. 

53.  Notwithstanding  ⌦ By  derogation  to ⌫  paragraphs  1  to  4  ⌦ and  2 ⌫  and  pending 
further  coordination,  the  competent  authorities  may  prescribe  or  allow  institutions  to  use 
alternative ⌦ the following ⌫ procedures for the purposes of this Annex. 

(cid:208) 93/6/EEC (adapted) 

(cid:208) 93/6/EEC (adapted) 

63.1.  Firstly,  tThe  competent  authorities  may  allow  institutions  to  provide  lower  capital 
requirements against positions in closely correlated currencies than those which would result 
from applying paragraphs 1 to 4 ⌦ and 2 ⌫ to them. The competent authorities may deem a 
pair of currencies to be closely correlated only if the likelihood of a loss — calculated on the 
basis of daily exchange-rate data for the preceding three or five years — occurring on equal 
and opposite positions in such currencies over the following 10 working days, which is 4 % or 
less  of  the  value  of  the  matched  position  in  question  (valued  in  terms  of  the  reporting 
currency) has a probability of at least 99 %, when an observation period of three years is used, 
or 95 %, when an observation period of five years is used. The own-funds requirement on the 
matched position in two closely correlated currencies shall be 4 % multiplied by the value of 
the  matched  position.  The  capital  requirement  on  unmatched  positions  in  closely  correlated 
currencies, and all positions in other currencies, shall be 8 %, multiplied by the higher of the 
sum of the net short or the net long positions in those currencies after the removal of matched 
positions in closely correlated currencies. 

(cid:208) 98/31/EC Art. 1.7 and Annex 
.3(d) (adapted) 

7.  Secondly,  until  31  December  2004,  the  competent  authorities  may  allow  institutions  to 
apply  an  alternative  method  to  those  outlined  in  paragraphs  1  to  6  for  the  purposes  of  this 
Annex. The capital requirement produced by this method must be sufficient to exceed 2 % of 
the net open position as measured in paragraph 4 and, on the basis of an analysis of exchange-
rate movements during all the rolling 10-working-day periods over the preceding three years, 
to exceed the likely loss 99 % or more of the time. 

The  alternative  method  described  in  the  first  subparagraph  may  only  be  used  under  the 
following conditions: 

(i) 

(ii) 

the  calculation  formula  and  the  correlation  coefficients  are  set  by  the  competent 
authorities, based on their analysis of exchange-rate movements; 

the competent authorities review the correlation coefficients regularly in the light of 
developments in foreign-exchange markets. 

83.2.  Thirdly,  tThe  competent  authorities  may  allow  institutions  to  remove  positions  in  any 
currency  which  is  subject  to  a  legally  binding  intergovernmental  agreement  to  limit  its 
variation relative to other currencies  covered  by the same agreement from  whichever of the 

(cid:208) 93/6/EEC (adapted) 

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methods  described  in  paragraphs  1  to  7 ⌦, 2  and  3.1 ⌫  that  they  apply.  Institutions  shall 
calculate their matched positions in such currencies and subject them to a capital requirement 
no lower than half of the maximum permissible variation laid down in the intergovernmental 
agreement in  question in respect of  the currencies concerned. Unmatched positions  in those 
currencies shall be treated in the same way as other currencies. 

Notwithstanding  ⌦ By  derogation  to ⌫  the  first  ⌦ sub- ⌫  paragraph,  the  competent 
authorities  may  allow  the  capital  requirement  on  the  matched  positions  in  currencies  of 
Member States participating in the second stage of the European monetary union to be 1.6 %, 
multiplied by the value of such matched positions. 

(cid:208) 93/6/EEC (adapted) 

9. The competent authorities shall notify the Council and Commission of the methods, if any, 
that they are prescribing or allowing in respect of paragraphs 6 to 8. 

10.  The  Commission  shall  report  to  the  Council  on  the  methods  referred  to  in  paragraph  9 
and, where necessary and with due regard to international developments, shall propose a more 
harmonized treatment of foreign-exchange risk. 

114.  Net  positions  in  composite  currencies  may  be  broken  down  into  the  component 
currencies according to the quotas in force. 

(cid:208) 93/6/EEC 

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(cid:208) 98/31/EC Art. 1.7 and Annex .5 
(adapted) 

ANNEX VIII ⌦ IV ⌫ 

⌦ CALCULATING CAPITAL REQUIREMENTS FOR ⌫ COMMODITIES RISK 

1. Each position in commodities or commodity derivatives shall be expressed in terms of the 
standard  unit  of  measurement.  The  spot  price  in  each  commodity  shall  be  expressed  in  the 
reporting currency. 

(cid:208) 98/31/EC Art. 1.7 and Annex .5 

(cid:208) 98/31/EC Art. 1.7 and Annex .5 
(adapted) 

2.  Positions  in  gold  or  gold  derivatives  shall  be  considered  as  being  subject  to  foreign-
exchange  risk  and  treated  according  to  Annex  III  or  Annex  VIII,  as  appropriate,  for  the 
purpose of calculating market risk. 

3.  For  the  purposes  of  this  Annex,  positions  which  are  purely  stock  financing  may  be 
excluded from the commodities risk calculation only. 

4. The interest-rate and foreign-exchange risks not covered by other provisions of this Annex 
shall  be  included  in  the  calculation  of  general  risk  for  traded  debt  instruments  and  in  the 
calculation of foreign-exchange risk. 

5.  When  the  short  position  falls  due  before  the  long  position,  institutions  shall  also  guard 
against the risk of a shortage of liquidity which may exist in some markets. 

6. For the purpose of paragraph 19, the excess of an institution's long (short) positions over its 
short  (long)  positions  in  the  same  commodity  and  identical  commodity  futures,  options  and 
warrants shall be its net position in each commodity. 

The competent authorities shall allow positions in derivative instruments to be treated, as laid 
down in paragraphs 8, 9 and 10, as positions in the underlying commodity. 

(cid:208) 98/31/EC Art. 1.7 and Annex .5  

7.  The  competent  authorities  may  regard  the  following  positions  as  positions  in  the  same 
commodity: 

-(a) 

positions  in  different  sub-categories  of  commodities  in  cases  where  the  sub-
categories are deliverable against each other; 

and 

-(b) 

positions  in  similar  commodities  if  they  are  close  substitutes  and  if  a  minimum 
correlation  of  0,9  0.9  between  price  movements  can  be  clearly  established  over  a 
minimum period of one year. 

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PARTICULAR INSTRUMENTS 

(cid:208) 98/31/EC Art. 1.7 and Annex .5 

(cid:208) 98/31/EC Art. 1.7 and Annex .5 
(adapted) 

8. Commodity futures and forward commitments to buy or sell individual commodities shall 
be incorporated in the measurement system as notional amounts in terms of the standard unit 
of measurement and assigned a maturity with reference to expiry date. 

The competent authorities may allow the capital requirement for an exchange-traded future to 
be equal to the margin required by the exchange if they are fully satisfied that it provides an 
accurate measure of the risk associated with the future and that it is at least equal to the capital 
requirement for a future that would result from a calculation made using the method set out in 
the remainder of this Annex or applying the internal models method described in Annex VIII.  

Until 31 December 2006 tThe competent authorities may also allow the capital requirement 
for an OTC commodity derivatives contract of the type referred to in this paragraph cleared 
by  a  clearing  house  recognised  by  them  to  be  equal  to  the  margin  required  by  the  clearing 
house if they are fully satisfied that it provides an accurate measure of the risk associated with 
the derivatives contract and that it is at least equal to the capital requirement for the contract 
in  question  that  would  result  from  a  calculation  made  using  the  method  set  out  in  the 
remainder of this Annex or applying the internal models method described in Annex VIII. 

(cid:208) 98/31/EC Art. 1.7 and Annex .5 
(adapted) 

9.  Commodity  swaps  where  one  side  of  the  transaction  is  a  fixed  price  and  the  other  the 
current market price shall be incorporated into the maturity ladder approach ⌦, as set out in 
paragraphs 13 to 18, ⌫ as a series of positions equal to the notional amount of the contract, 
with one position corresponding with each payment on the swap and slotted into the maturity 
ladder set out in the tTable appearing in paragraph 13 ⌦ 1 ⌫. The positions would be long 
positions  if  the  institution  is  paying  a  fixed  price  and  receiving  a  floating  price  and  short 
positions if the institution is receiving a fixed price and paying a floating price. 

Commodity swaps where the sides of the transaction are in different commodities  are  to  be 
reported in the relevant reporting ladder for the maturity ladder approach. 

(cid:208) 98/31/EC Art. 1.7 and Annex .5 
(adapted) 

10.  Options  on  commodities  or  on  commodity  derivatives  shall  be  treated  as  if  they  were 
positions equal in value to the amount of the underlying to which the option refers, multiplied 
by its delta for the purposes of this Annex. The latter positions may be netted off against any 
offsetting positions in the identical underlying commodity or commodity derivative. The delta 
used shall be that of the exchange concerned, that calculated by the competent authorities or, 
where none of those is available, or for OTC options, that calculated by the institution itself, 

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subject  to  the  competent  authorities  being  satisfied  that  the  model  used  by  the  institution  is 
reasonable. 

However, the competent authorities may also prescribe that institutions calculate their deltas 
using a methodology specified by the competent authorities. 

The  competent  authorities  shall  require  that  the  oOther  risks,  apart  from  the  delta  risk, 
associated with commodity options are ⌦ shall be ⌫ safeguarded against. 

The  competent  authorities  may  allow  the  requirement  for  a  written  exchange-traded 
commodity  option  to  be  equal  to  the  margin  required  by  the  exchange  if  they  are  fully 
satisfied that it provides an accurate measure of the risk associated with the option and that it 
is  at  least  equal  to  the  capital  requirement  against  an  option  that  would  result  from  a 
calculation  made  using  the  method  set  out  in  the  remainder  of  this  Annex  or  applying  the 
internal models method described in Annex VIII.  

Until 31 December 2006 tThe competent authorities may also allow the capital requirement 
for an OTC commodity option cleared by a clearing house recognised by them to be equal to 
the margin required by the clearing house if they are fully satisfied that it provides an accurate 
measure  of  the  risk  associated  with  the  option  and  that  it  is  at  least  equal  to  the  capital 
requirement for an OTC option that would result from a calculation made using the method 
set  out  in  the  remainder  of  this  Annex  or  applying  the  internal  models  method  described  in 
Annex VIII. 

In addition they may allow the requirement on a bought exchange-traded or OTC commodity 
option to be the same as that for the commodity underlying it, subject to the constraint that the 
resulting requirement does not exceed the market value of the option. The requirement for a 
written OTC option shall be set in relation to the commodity underlying it. 

(cid:208) 98/31/EC Art. 1.7 and Annex .5 
(adapted) 

11. Warrants relating to commodities shall be treated in the same way as commodity options 
under ⌦ referred to in ⌫ paragraph 10. 

12.  The  transferor  of  commodities  or  guaranteed  rights  relating  to  title  to  commodities  in  a 
repurchase  agreement  and  the  lender  of  commodities  in  a  commodities  lending  agreement 
shall include such commodities in the calculation of its capital requirement under this Annex. 

(cid:208) 98/31/EC Art. 1.7 and Annex .5 

(cid:208) 98/31/EC Art. 1.7 and Annex .5 
(adapted) 

(a) Maturity ladder approach 

13. The institution shall use a separate maturity ladder in line with the following tTable 1 for 
each  commodity.  All  positions  in  that  commodity  and  all  positions  which  are  regarded  as 
positions in the same commodity pursuant to paragraph 7 shall be assigned to the appropriate 
maturity bands. Physical stocks shall be assigned to the first maturity band. 

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⌦ Table 1 ⌫ 

Maturity band 

Spread rate 

(1) 

(in %) 

(2) 

0 ≤ 1 month 

> 1 ≤ 3 months 

> 3 ≤ 6 months 

> 6 ≤ 12 months 

> 1 ≤ 2 years 

> 2 ≤ 3 years 

> 3 years 

1.50

1.50

1.50

1.50

1.50

1.50

1.50

14.  Competent  authorities  may  allow  positions  which  are,  or  are  regarded  pursuant  to 
paragraph 7 as, positions in the same commodity to be offset and assigned to the appropriate 
maturity bands on a net basis for ⌦ the following ⌫ : 

- (a) 

positions in contracts maturing on the same date; 

and 

- (b) 

positions  in  contracts  maturing  within  10  days  of  each  other  if  the  contracts  are 
traded on markets which have daily delivery dates. 

(cid:208) 98/31/EC Art. 1.7 and Annex .5 

15. The institution shall then work out the sum of the long positions and the sum of the short 
positions in each maturity band. The amount of the former (latter) which are matched by the 
latter (former) in a given maturity band shall be the matched positions in that band, while the 
residual long or short position shall be the unmatched position for the same band. 

16. That part of the unmatched long (short) position for a given maturity band that is matched 
by the unmatched short (long) position for a maturity band further out shall be the matched 
position  between  two  maturity  bands.  That  part  of  the  unmatched  long  or  unmatched  short 
position that cannot be thus matched shall be the unmatched position. 

17. The institution's capital requirement for each commodity shall be calculated on the basis 
of the relevant maturity ladder as the sum of the following: 

(ia) 

the sum of the matched long and short positions, multiplied by the appropriate spread 
rate as indicated in the second column of the table appearing in paragraph 13 for each 
maturity band and by the spot price for the commodity; 

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(iib) 

the matched position between two maturity bands for each maturity band into which 
an unmatched position is carried forward, multiplied by 0,6 % (carry rate) and by the 
spot price for the commodity; 

(iiic) 

the residual unmatched positions, multiplied by 15 % (outright rate) and by the spot 
price for the commodity. 

18. The institution's overall capital requirement for commodities risk shall be calculated as the 
sum of the capital requirements calculated for each commodity according to paragraph 17. 

(b) Simplified approach 

19. The institution's capital requirement for each commodity shall be calculated as the sum of: 

(ia) 

(iib) 

15%  of  the  net  position,  long  or  short,  multiplied  by  the  spot  price  for  the 
commodity; 

3%  of  the  gross  position,  long  plus  short,  multiplied  by  the  spot  price  for  the 
commodity. 

20. The institution's overall capital requirement for commodities risk shall be calculated as the 
sum of the capital requirements calculated for each commodity according to paragraph 19. 

(cid:208) 93/6/EEC Art 11a (adapted) 

⌦ (c) Extended Maturity ladder approach ⌫ 

Until  31  December  2006,  Member  States ⌦ Competent  authorities ⌫  may  authorise  their 
institutions to use the minimum spread, carry and outright rates set out in the following table 
instead  of  those  indicated  in  paragraphs  13,  14,  17  and  18  of  Annex  VII  provided  that  the 
institutions, in the opinion of their competent authorities: 

(a) 

undertake significant commodities business, 

(b)  have a diversified commodities portfolio, and 

(c) 

are not yet in a position to use internal models for the purpose of calculating 
the  capital  requirement  on  commodities  risk  in  accordance  with  Annex 
⌦ V ⌫ VIII. 

Table 2 

Precious metals 
(except gold) 

Base 
metals 

Agricultural 
products (softs) 

Other, including 
energy products 

Spread 
rate (%) 

1.0 

Carry 
rate (%) 

0.3 

1.2 

1.5 

0.5 

0.6 

Outright  8 

10 

12 

1.5 

0.6 

15 

EN 

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rate (%) 

EN 

83 

   EN 

 
(cid:208) 98/31/EC Art. 1.7 and Annex .5 
(adapted) 
(cid:206)1 98/31/EC Art. 1.7 and Annex 
.5 amended by Corrigendum, OJ L 
248, 8.9.1998, p. 20 

ANNEX VIII 

⌦ USE OF ⌫ INTERNAL MODELS ⌦ TO CALCULATE CAPITAL 
REQUIREMENTS ⌫ 

1.  The  competent  authorities  may,  subject  to  the  conditions  laid  down  in  this  Annex,  allow 
institutions  to  calculate  their  capital  requirements  for  position  risk,  foreign-exchange  risk 
and/or  commodities  risk  using  their  own  internal  risk-management  models  instead  of  or  in 
combination  with  the  methods  described  in  Annexes  I,  III  and  VII  ⌦ IV ⌫.  Explicit 
recognition by the competent authorities of the use of models for supervisory capital purposes 
shall be required in each case. 

2. Recognition shall only be given if the competent authority is satisfied that the institution's 
risk-management  system  is  conceptually  sound  and  implemented  with  integrity  and  that,  in 
particular, the following qualitative standards are met: 

(ia) 

the  internal  risk-measurement  model  is  closely  integrated  into  the  daily  risk-
management process of the institution and serves as the basis for reporting risk 
exposures to senior management of the institution; 

(iib)  the institution has a risk control unit that is independent from business trading 
units and reports directly to senior management. The unit must be responsible 
for  designing  and  implementing  the  institution's  risk-management  system.  It 
shall produce and analyse daily reports on the output of the risk-measurement 
model and on the appropriate measures to be taken in terms of trading limits; 

(iiic)  the institution's board of directors and senior management are actively involved 
in  the  risk-control  process  and  the  daily  reports  produced  by  the  risk-control 
unit are reviewed by a level of management with sufficient authority to enforce 
both  reductions  of  positions  taken  by  individual  traders  as  well  as  in  the 
institution's overall risk exposure; 

(ivd)  the institution has sufficient numbers of staff skilled in the use of sophisticated 

models in the trading, risk-control, audit and back-office areas; 

(ve)  the  institution  has  established  procedures  for  monitoring  and  ensuring 
compliance with a documented set of internal policies and controls concerning 
the overall operation of the risk-measurement system; 

(vif)  the  institution's  models  have  a  proven  track  record  of  reasonable  accuracy  in 

measuring risks; 

(viig) the  institution  frequently  conduct  a  rigorous  programme  of  stress  testing  and 
the  results  of  these  tests  are  reviewed  by  senior  management  and  reflected  in 
the policies and limits it sets; 

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(viiih) the institution must conduct, as part of its regular internal auditing process, an 

independent review of its risk-measurement system. 

This ⌦ The ⌫ review ⌦ referred to in point (h) of the first subparagraph ⌫ must 
⌦ shall ⌫  include  both  the  activities  of  the  business  trading  units  and  of  the 
independent  risk-control  unit.  At  least  once  a  year,  the  institution  must  conduct  a 
review of its overall risk-management process. 

The review must ⌦ shall ⌫ consider ⌦ the following ⌫ : 

- (a)  the adequacy of the documentation of the risk-management system and process 

and the organisation of the risk-control unit; 

- (b)  the  integration  of  market  risk  measures  into  daily  risk  management  and  the 

integrity of the management information system; 

- (c)  the  process  the  institution  employs  for  approving  risk-pricing  models  and 

valuation systems that are used by front and back-office personnel; 

- (d)  the  scope  of  market  risks  captured  by  the  risk-measurement  model  and  the 

validation of any significant changes in the risk-measurement process; 

- (e)  the  accuracy  and  completeness  of  position  data, 

the  accuracy  and 
appropriateness of volatility and correlation assumptions,  and  the  accuracy of 
valuation and risk sensitivity calculations; 

- (f)  the  verification  process  the  institution  employs  to  evaluate  the  consistency, 
timeliness and reliability of data sources used to run internal models, including 
the independence of such data sources; 

and 

- (g)  the  verification  process  the  institution  uses  to  evaluate  back-testing  that  is 

conducted to assess the model's accuracy. 

3.  The  institution  shall  monitor the  accuracy  and  performance  of  its  model  by  conducting  a 
back-testing programme. The back-testing has to provide for each business day a comparison 
of  the  one-day  value-at-risk  measure  generated  (cid:206)1 by  the  institution's  model  for  the 
portfolio's end-of-day positions to the one-day change of the portfolio's value  by the end of 
the subsequent business day. 

Competent  authorities  shall  examine  the  institution's  capability  to  perform  back-testing  on 
both  actual  and  hypothetical  changes  in  the  portfolio's  value.  Back-testing  on  hypothetical 
changes in the portfolio's value is based on a comparison between the portfolio's end-of-day 
value  and,  assuming  unchanged  positions,  its  value  at  the  end  of  the  subsequent  day. 
Competent authorities shall require institutions to take appropriate measures to improve their 
back-testing programme if deemed deficient. 

4. For the purpose of calculating capital requirements for specific risk associated with traded 
debt and equity positions, the competent authorities may recognise the use of an institution's 
internal  model  if,  in  addition  to  compliance  with  the  conditions  in  the  remainder  of  this 
Annex, the model ⌦ meets the following conditions ⌫ : 

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- (a)  it explains the historical price variation in the portfolio; 

- (b)  it captures concentration in terms of magnitude and changes of composition of 

the portfolio; 

- (c)  it is robust to an adverse environment; 

- (d)  it is validated through back-testing aimed at assessing whether specific risk is 
being accurately captured. If competent authorities allow this back-testing to be 
performed  on  the  basis  of  relevant  sub-portfolios,  these  must  be  chosen  in  a 
consistent manner. 

(cid:208) 98/31/EC Art. 1.7 and Annex .5 

5. Institutions using internal models which are not recognised in accordance with paragraph 4 
shall be subject to a separate capital charge for specific risk as calculated according to Annex 
I. 

6. For the purpose of paragraph 10(ii) the results of the institution's own calculation shall be 
scaled up by a multiplication factor of at least 3. 

(cid:208) 98/31/EC Art. 1.7 and Annex .5 
(adapted) 

7.  The  multiplication  factor  shall  be  increased  by  a  plus-factor  of  between  0  and  1  in 
accordance with the following tTable ⌦ 1 ⌫, depending on the number of overshootings for 
the most recent 250  business  days  as  evidenced by the institution's back-testing. Competent 
authorities shall require the institutions to calculate overshootings consistently on the basis of 
back-testing  either  on  actual  or  on  hypothetical  changes  in  the  portfolio's  value.  An 
overshooting  is  a  one-day  change  in  the  portfolio's  value  that  exceeds  the  related  one-day 
value-at-risk measure generated by the institution's model. For the purpose of determining the 
plus-factor the number of overshootings shall be assessed at least quarterly. 

⌦ Table 1 ⌫ 

Number of overshootings 

Plus-factor 

Fewer than 5 

5 

6 

7 

8 

9 

10 or more 

0.00

0.40

0.50

0.65

0.75

0,85

1.00

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The  competent  authorities  can ⌦ may ⌫,  in  individual  cases  and  owing  to  an  exceptional 
situation,  waive  the  requirement  to  increase  the  multiplication  factor  by  the  plus-factor 
according to the above tTable ⌦ 1 ⌫, if the institution has demonstrated to the satisfaction 
of the competent authorities that such an increase is unjustified and that the model is basically 
sound. 

If numerous overshootings indicate that the model is not sufficiently accurate, the competent 
authorities shall revoke the model's recognition or impose appropriate measures to ensure that 
the model is improved promptly. 

In order to allow competent authorities to monitor the appropriateness of the plus-factor on an 
ongoing  basis,  institutions  shall  notify  promptly,  and  in  any  case  no  later  than  within  five 
working  days,  the  competent  authorities  of  overshootings  that  result  form  their  back-testing 
programme and that would according to the above table imply an increase of a plus-factor. 

8.  If  the  institution's  model  is  recognised  by  the  competent  authorities  in  accordance  with 
paragraph 4 for the purpose of calculating capital requirements for specific risk, the institution 
shall  increase  its  capital  requirement  calculated  pursuant  to  paragraphs  6,  7  and  10  by  a 
surcharge in the amount of either ⌦ of the following ⌫: 

(ia) 

(iib) 

the  specific  risk  portion  of  the  value-at-risk  measure  which  should  be  isolated 
according to supervisory guidelines; or, at the institution's option, 

the value-at-risk measures of sub-portfolios of debt and equity positions that contain 
specific risk. 

Institutions  using  option  (ii  ⌦ b ⌫)  are  required  to  identify  their  sub-portfolio  structure 
beforehand and should not change it without the consent of the competent authorities. 

9.  The  competent  authorities  may  waive  the  requirement  pursuant  to  paragraph  8  for  a 
surcharge  if  the  institution  demonstrates  that  in  line  with  agreed  international  standards  its 
model  accurately  captures  also  the  event  risk  and default  risk  for  its  traded  debt  and  equity 
positions. 

(cid:208) 98/31/EC Art. 1.7 and Annex .5 

(cid:208) 98/31/EC Art. 1.7 and Annex .5 
(adapted) 

10. Each institution must meet a capital requirement expressed as the higher of: 

(ia) 

(iib) 

its  previous  day's  value-at-risk  number  measured  according  to  the  parameters 
specified in this Annex; 

an average of the daily value-at-risk measures on each of the preceding 60 business 
days,  multiplied  by  the  factor  mentioned  in  paragraph  6,  adjusted  by  the  factor 
mentioned ⌦ referred to ⌫ in paragraph 7. 

11. The calculation of value-at-risk shall be subject to the following minimum standards: 

(cid:208) 98/31/EC Art. 1.7 and Annex .5 

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(ia) 

at least daily calculation of value-at-risk; 

(iib) 

a 99th percentile, one-tailed confidence interval; 

(iiic) 

a 10-day equivalent holding period; 

(ivd) 

an effective historical observation period of at least one year except where a shorter 
observation period is justified by a significant upsurge in price volatility; 

(ve) 

three-monthly data set updates. 

12. The competent authorities shall require that the model captures accurately all the material 
price  risks  of  options  or  option-like  positions  and  that  any  other  risks  not  captured  by  the 
model are covered adequately by own funds. 

13.  The  competent  authorities  shall  require  that  the  risk-measurement  model  ⌦ shall ⌫ 
captures  a  sufficient  number  of  risk  factors,  depending  on  the  level  of  activity  of  the 
institution in the respective markets ⌦ and in particular the following ⌫ . 

(cid:208) 98/31/EC Art. 1.7 and Annex .5 
(adapted) 

As a minimum, the following provisions shall be respected: 

⌦ Interest rate risk ⌫ 

(i) 
for  interest  rate  risk,  tThe  risk-measurement  system  shall  incorporate  a  set  of  risk 
factors corresponding to the interest rates in each currency in which the institution has interest 
rate sensitive on- or off-balance sheet positions. The institution shall model the yield curves 
using one of the generally accepted approaches. For material exposures to interest-rate risk in 
the  major  currencies  and  markets,  the  yield  curve  shall  be  divided  into  a  minimum  of  six 
maturity segments,  to  capture  the  variations of volatility  of rates along the  yield  curve. The 
risk-measurement  system  must  also  capture  the  risk  of  less  than  perfectly  correlated 
movements between different yield curves;. 

⌦ Foreign-exchange risk ⌫ 

(ii) 
for foreign-exchange risk, tThe risk-measurement system shall incorporate risk factors 
corresponding  to  gold  and  to  the  individual  foreign  currencies  in  which  the  institution's 
positions are denominated;. 

(cid:216) new 

For  CIUs  the  actual  foreign  exchange  positions  of  the  CIU  shall  be  taken  into  account. 
Institutions  may  rely  on  third  party  reporting  of  the  foreign  exchange  position  in  the  CIU, 
where the correctness of this report is adequately ensured. If an institution is not aware of the 
foreign  exchange  positions  in  a  CIU,  it  shall  be  assumed  that  the  CIU  is  invested  up  to  the 
maximum extent allowed under the CIU’s mandate in foreign exchange and institutions shall, 
for  trading  book  positions,  take  account  of  the  maximum  indirect  exposure  that  they  could 
achieve  by  taking  leveraged  positions  through  the  CIU  when  calculating  their  capital 
requirement  for  foreign  exchange  risk.  This  shall  be  done  by  proportionally  increasing  the 

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position in the CIU up to the maximum exposure to the underlying investment items resulting 
from the investment mandate. The assumed position of the CIU in foreign exchange shall be 
treated as a separate currency according to the treatment of investments in gold. If, however, 
the direction of the CIU's investment is available, the total long position may be added to that 
the total long open foreign exchange position and the total short position may be added to the 
total short open foreign exchange position. There would be no netting allowed between such 
positions prior to the calculation. 

(cid:208) 98/31/EC Art. 1.7 and Annex .5 
(adapted) 

⌦ Equity risk ⌫ 

for equity risk, tThe risk-measurement system shall use a separate risk factor at least 

(iii) 
for each of the equity markets in which the institution holds significant positions;. 

⌦ Commodity risk ⌫ 

(iv) 
for commodity risk, tThe risk-measurement system shall use a separate risk factor at 
least  for  each  commodity  in  which  the  institution  holds  significant  positions.  The  risk-
measurement  system  must  also  capture  the  risk  of  less  than  perfectly  correlated  movements 
between similar, but not identical, commodities and the exposure to changes in forward prices 
arising from maturity mismatches. It shall also take account of market characteristics, notably 
delivery dates and the scope provided to traders to close out positions;. 

14. The competent authorities may allow institutions to use empirical correlations within risk 
categories  and  across  risk  categories  if  they  are  satisfied  that  the  institution's  system  for 
measuring correlations is sound and implemented with integrity. 

(cid:208) 98/31/EC Art. 1.7 and Annex .5 

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(cid:208) 93/6/EEC Annex VI (8) (2) 
second sentence (adapted) 

ANNEX VI 

⌦ CALCULATING CAPITAL REQUIREMENTS FOR ⌫ LARGE EXPOSURES 

1.  The  excess  referred  to  in  Article  29 ⌦ 31 ⌫  (b)  shall  be  calculated  by  selecting  those 
components of the total trading exposure to the client or group of clients  in  question  which 
attract the highest specific-risk requirements in Annex I and/or requirements in Annex II, the 
sum of which equals the amount of the excess referred to in Article 29 ⌦ 31 ⌫ (a). 

2.  Where  the  excess  has  not  persisted  for  more  than  10  days,  the  additional  capital 
requirement  shall  be  200 %  of  the  requirements  referred  to  in  paragraph  1,  on  these 
components.  

3. As from 10 days after the excess has occurred, the components of the excess, selected in 
accordance with paragraph 1, shall be allocated to the appropriate line in column 1 of Table I 
in ascending order of specific-risk requirements in Annex I and/or requirements in Annex II. 
The additional capital requirement shall be equal to the sum of the specific-risk requirements 
in  Annex  I  and/or  the  Annex  II  requirements  on  these  components  multiplied  by  the 
corresponding factor in column 2 of Table I. 

⌦ Table 1 ⌫ 

Excess over the limits 

Factors 

(on the basis of a percentage of own funds) 

Up to 40 % 

From 40 % to 60 % 

From 60 % to 80 % 

From 80 % to 100 % 

From 100 % to 250 % 

Over 250 % 

200 % 

300 % 

400 % 

500 % 

600 % 

900 % 

(cid:207) 

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(cid:216) new 

ANNEX VII 

TRADING 

PART A - TRADING INTENT 

1. Positions/portfolios held with trading intent shall comply with the following requirements: 

(a) 

there must be a clearly documented trading strategy for the position/instrument 
or  portfolios,  approved  by  senior  management,  which  shall  include  expected 
holding horizon; 

(b) 

there  must  be  clearly  defined  policies  and  procedures  for  the  active 
management of the position, which shall include the following: 

(i) 

positions entered into on a trading desk; 

(ii)  position limits are set and monitored for appropriateness; 

(iii)  dealers  have  the  autonomy  to  enter  into/manage  the  position  within 

agreed limits and according to the agreed strategy; 

(iv)  positions  are  reported  to  senior  management  as  an  integral  part  of  the 

institution’s risk management process; 

(v)  positions  are  actively  monitored  with  reference  to  market  information 
sources and an assessment made of the marketability or hedge-ability of 
the  position  or  its  component  risks,  including  the  assessment  of,  in 
particular,  the  quality  and  availability  of  market  inputs  to  the  valuation 
process, level of market turnover, sizes of positions traded in the market; 

(c) 

there  must  be  clearly  defined  policy  and  procedures  to  monitor  the  position 
against  the  institution’s  trading  strategy  including  the  monitoring  of  turnover 
and sale positions in the institution’s trading book. 

PART B - SYSTEMS AND CONTROLS 

1. Institutions shall establish and maintain systems and controls sufficient to provide prudent 
and reliable valuation estimates. 

2. Systems and controls shall include at least the following elements: 

(a) 

documented policies and procedures for the process of valuation. This includes 
clearly  defined  responsibilities  of 
the 
determination  of  the  valuation,  sources  of  market  information  and  review  of 
their  appropriateness,  frequency  of  independent  valuation,  timing  of  closing 

the  various  areas 

involved 

in 

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prices, procedures for adjusting valuations, month end and ad-hoc verification 
procedures; 

(b) 

clear and independent (i.e. independent of front office) reporting lines for the 
department accountable for the valuation process. 

The reporting line shall ultimately be to a main board executive director. 

Prudent Valuation Methods 

3. Marking to market is the at least daily valuation of positions at readily available close out 
prices  that  are  sourced  independently.  Examples  include  exchange  prices,  screen  prices,  or 
quotes from several independent reputable brokers. 

4.  When  marking  to  market,  the  more  prudent  side  of  bid/offer  shall  be  used  unless  the 
institution  is  a  significant  market  maker  in  the  particular  type  of  financial  instrument  or 
commodity in question and it can close out at mid market. 

5.  Where  marking  to  market  is  not  possible,  institutions  must  mark  to  model  their 
positions/portfolios  before  applying  trading  book  capital  treatment.  Marking  to  model  is 
defined as any valuation which has to be benchmarked, extrapolated or otherwise calculated 
from a market input. 

6. The following requirements must be complied with when marking to model: 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

(g) 

senior  management  shall  be  aware  of  the  elements  of  the  trading  book  which  are 
subject to mark to model and shall understand the materiality of the uncertainty this 
creates in the reporting of the risk/performance of the business; 

market  inputs  shall  be  sourced,  where  possible,  in  line  with  market  prices,  and  the 
appropriateness of the market inputs of the particular position being valued and the 
parameters of the model shall be assessed on a daily basis; 

where  available,  valuation  methodologies  which  are  accepted  market  practice  for 
particular financial instruments or commodities shall be used; 

where the model is developed by the institution itself, it shall be based on appropriate 
assumptions, which have been assessed and challenged by suitably qualified parties 
independent of the development process; 

there  shall  be  formal  change  control  procedures  in  place  and  a  secure  copy  of  the 
model shall be held and periodically used to check valuations; 

risk management shall be aware of the weaknesses of the models used and how best 
to reflect those in the valuation output; 

the  model  shall  be  subject  to  periodic  review  to  determine  the  accuracy  of  its 
performance  (e.g.  assessing  the  continued  appropriateness  of  assumptions,  analysis 
of P&L versus risk factors, comparison of actual close out values to model outputs). 

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For  the  purposes  of  point  (d),  the  model  shall  be  developed  or  approved 
independently  of  the  front  office.  If  shall  be  independently  tested.  This  includes 
validating the mathematics, the assumptions and the software implementation 

7. Independent price verification should be performed in addition to daily marking to market 
or marking to model. This is the process by which market prices or model inputs are regularly 
verified for accuracy and independence. While daily marking to market may be performed by 
dealers,  verification  of  market  prices  and  model  inputs  should  be  performed  by  a  unit 
independent  of  the  dealing  room,  at  least  monthly  (or,  depending  on  the  nature  of  the 
market/trading  activity,  more  frequently).  Where  independent  pricing  sources  are  not 
available  or  pricing  sources  are  more  subjective,  prudent  measures  such  as  valuation 
adjustments may be appropriate. 

Valuation adjustments or reserves 

Institutions  shall  establish  and  maintain  procedures 

8. 
adjustments/reserves. 

for  considering  valuation 

General standards 

9. The competent authorities shall require the following valuation adjustments/reserves to be 
formally  considered:  unearned  credit  spreads,  close-out  costs,  operational  risks,  early 
termination,  investing  and  funding  costs,  future  administrative  costs  and,  where  relevant, 
model risk. 

Standards for less liquid items 

10. Less liquid positions could arise from both market events and institution-related situations 
e.g. concentrated positions and/or stale positions. 

11. Institutions shall consider several factors when determining whether a valuation reserve is 
necessary  for  less  liquid  items.  These  factors  include  the  amount  of  time  it  would  take  to 
hedge out the position/risks within the position, the volatility and average of bid/offer spreads, 
the  availability  of  market  quotes  (number  and  identity  of  market  makers)  and  the  volatility 
and average of trading volumes. 

12. When using third party valuations or marking to model, institutions shall consider whether 
to  apply  a  valuation  adjustment.  In  addition,  institutions  shall  consider  the  need  for 
establishing reserves for less liquid position and on an ongoing basis review their continued 
suitability. 

13. When valuation adjustments/reserves give rise to material losses of the current financial 
year, these shall be deducted from an institution’s original own funds according to point (k) of 
Article 57 of Directive [2000/12/EC]. 

14.  Other  profits/losses  originating  from  valuation  adjustments/reserves  shall  be  included  in 
the  calculation  of  “net  trading  book  profits”  mentioned  in  point  (2)(b)  of  Article  13  and  be 
added to/deducted from the additional own funds eligible to cover market risk requirements 
according to such provisions. 

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PART C – INTERNAL HEDGES 

1.  An  internal  hedge  is  a  position  that  materially  or  completely  offsets  the  component  risk 
element  of  a  non-trading  book  position  or  a  set  of  positions.  Positions  arising  from  internal 
hedges are eligible for trading book capital treatment, provided that they are held with trading 
intent and that the general criteria on trading intent and prudent valuation specified in Parts A 
and B are met. In particular: 

(a) 

(b) 

internal  hedges  shall  not  be  primarily  intended  to  avoid  or  reduce  capital 
requirements; 

internal hedges shall be properly documented and subject to particular internal 
approval and audit procedures; 

(c) 

the internal transaction shall be dealt with at market conditions; 

(d) 

the  bulk  of  the  market  risk  that  is  generated  by  the  internal  hedge  shall  be 
dynamically managed in the trading book within the authorised limits;  

(e) 

internal transactions shall be carefully monitored.  

Monitoring must be ensured by adequate procedures. 

2.  The  treatment  referred  to  in  paragraph  1  applies  without  prejudice  to  the  capital 
requirements applicable to the “non-trading book leg” of the internal hedge. 

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ANNEX VIII 

REPEALED DIRECTIVES 

PART A 

REPEALED  DIRECTIVES 
AMENDMENTS 

(referred to in Article 48) 

TOGETHER  WITH 

THEIR 

SUCCESSIVE 

Council Directive 93/6/EEC of 15 March 1993 on the capital adequacy of investments firms 
and credit institutions 

Directive 98/31/EC of the European Parliament and of the Council of 22 June 1998 amending 
Council  Directive  93/6/EEC  on  the  capital  adequacy  of  investment  firms  and  credit 
institutions 

Directive 98/33/EC of the European Parliament and of the Council of 22 June 1998 amending 
Article 12 of Council Directive 77/780/EEC on the taking up and pursuit of the business of 
credit  institutions,  Articles  2,  5,  6,  7,  8  of  and  Annexes  II  and  III  to  Council  Directive 
89/647/EEC  on  a  solvency  ratio  for  credit  institutions  and  Article  2  of  and  Annex  II  to 
Council  Directive  93/6/EEC  on  the  capital  adequacy  of  investment  firms  and  credit 
institutions 

Directive 2002/87/EC of the European Parliament and of the Council of 16 December 2002 
on  the  supplementary  supervision  of  credit  institutions,  insurance  undertakings  and 
investment firms in a financial conglomerate and amending Council Directives 73/239/EEC, 
79/267/EEC, 92/49/EEC, 92/96/EEC, 93/6/EEC and 93/22/EEC, and Directives 98/78/EC and 
2000/12/EC of the European Parliament and of the Council, 

Only Art. 26 

Directive  2004/39/EC  of  the  European  Parliament  and  of  the  Council  of  21  April  2004  on 
markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and 
Directive 2000/12/EC of the European Parliament and of the Council and repealing Council 
Directive 93/22/EEC 

Only Art. 67 

PART B 

DEADLINES FOR IMPLEMENTATION 

(referred to in Article 48) 

Directive 

Deadline for implementation 

Council Directive 93/6/EEC 

1.7.1995 

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Directive 98/31/EC 

Directive 98/33/EC 

Directive 2002/87/EC 

Directive 2004/39/EC 

Directive 2004/xx/EC 

21.7.2000 

21.7.2000 

11.8.2004 

Not yet available 

Not yet available 

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(cid:216) new 

ANNEX IX 

CORRESPONDANCE TABLE 

This Directive 

Directive 
93/6/EEC 

Directive 
98/31/EC 

Directive 
98/33/EC 

Directive 
2002/87/EC 

Directive 
2004/39/EC 

Article 67(1) 

Article  1(1)  first 
sentence 

Article 
second 
and (2) 

1(1) 
sentence 

Article 1 

Article 2(1) 

Article 2(2) 

Article 7(3) 

Article 3(1)(a) 

Article 2(1) 

Article 3(1)(b) 

Article 2(2) 

Article  3(1)(c)  to 
(e) 

Article 2(3) to (5) 

Article 3(1)(f) and 
(g) 

Article 3(1)(h) 

Article 2(10) 

Article 3(1)(i) 

Article 2(11) 

Article 3(1) 

Article 3(1)(j) 

Article 2(14) 

Article 
and (l) 

3(1)(k) 

Article  2(15)  and 
(16) 

Article 1(1)(b) 

Article 3(1)(m) 

Article 2(17) 

Article 1(1)(c) 

Article 3(1)(n) 

Article 2(18) 

Article 1(1)(d) 

Article  3(1)(o)  to 
(q) 

Article  2(19) 
(21) 

to 

Article 3(1)(r) 

Article 2(23) 

Article 3(1)(s) 

Article 2(26) 

Article 3(2) 

Article  2(7)  and 
(8) 

Article 
and (b) 

3(3)(a) 

Article 7(3) 

Article 3(3)(c) 

Article 7(3) 

Article 26 

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This Directive 

Directive 
93/6/EEC 

Directive 
98/31/EC 

Directive 
98/33/EC 

Directive 
2002/87/EC 

Directive 
2004/39/EC 

Article 67(2) 

Article 67(3) 

Article 67(3) 

Article 4 

Article 2(24) 

Article 5 

Article  3(1)  and 
(2) 

Article 6 

Article 3(4) 

Article 7 

Article 3(4a) 

Article 8 

Article 3(4b) 

Article 9 

Article 3(3) 

Article 10 

Article 3(5) to (8) 

Article 11 

Article 2(6) 

Article  12 
sub-paragraph 

first 

Article 2(25) 

Article  12  second 
sub-paragraph 

Article  13(1)  first 
sub-paragraph 

Annex  V(1)  first 
sub-paragraph 

13(1) 
Article 
second 
sub-
paragraph  and  (2) 
to (5) 

V(1) 
Annex 
second 
sub-
paragraph  and  (2) 
to (5) 

Article  1(7)  and 
Annex 4(a)(b) 

Article 14 

Annex  V(6)  and 
(7) 

Annex 4(c) 

Article 15 

Annex V(8) 

Article 16 

Annex V(9) 

Article 17 

Article  18(1)  first 
sub-paragraph 

Article  4(1)  first 
sub-paragraph 

Article 
and (b) 

18(1)(a) 

Article  4(1)(i)  and 
(ii) 

Article 1(2) 

to 

Article 4(6) to (8) 

Article  18(2) 
(4) 

Article 19(1) 

Article 19(2) 

Article 11(2) 

Article 19(3) 

Article 20 

Article 21 

Annex IV 

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This Directive 

Directive 
93/6/EEC 

Directive 
98/31/EC 

Directive 
98/33/EC 

Directive 
2002/87/EC 

Directive 
2004/39/EC 

Article  7(5)  and 
(6) 

Article 22 

first 
Article  23 
and  second  sub-
paragraph 

Article  23 
sub-paragraph 

third 

Article 24 

Article 25 

Article 26(1) 

Article 7(10) 

Article 1(4) 

Article  26(2) 
(4) 

to 

Article  7(11) 
(13) 

to 

Article 27 

Article  7(14)  and 
(15) 

Article 28(1) 

Article 5(1) 

Article 28(2) 

Article 5(2) 

Article 1(3) 

Annex VI(2) 

Article 28(3) 

Article 29(1)(a) to 
(c)  and  next  two 
sub-paragraphs 

Article  29(1)  last 
sub-paragraph 

Article 29(2) 

Annex VI(3) 

Annex  VI(4)  and 
(5) 

Article  30(1)  and 
(2) 
sub-
first 
paragraph 

Article 
second 
paragraph 

30(2) 
sub-

Article  30(3)  and 
(4) 

Annex  VI(6)  and 
(7) 

Article 31 

Article 32 

Annex  VI(8)(1), 
(2)  first  sentence, 
(3) to (5) 

Annex  VI(9)  and 
(10) 

Article  33(1)  and 
(2) 

Article 33(3) 

Article 6(2) 

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This Directive 

Directive 
93/6/EEC 

Directive 
98/31/EC 

Directive 
98/33/EC 

Directive 
2002/87/EC 

Directive 
2004/39/EC 

Article 34 

Article  35(1) 
(4) 

Article 35(5) 

to 

Article 8(1) to (4) 

Article  8(5)  first 
sentence 

Article 1(5) 

Article 36 

Article 9(1) to (3) 

Article 37 

Article 38 

Article 9(4) 

Article 39 

Article 40 

Article 2(9) 

Article 41 

Article 42(1)(a) to 
(c) 

Article  10 
second  and 
indents 

first, 
third 

Article 
and (e) 

42(1)(d) 

Article 42(1)(f) 

Article  10  fourth 
indent 

Article 42(1)(g) 

Article 43 

Article 44 

Article 45 

Article 46 

Article 12 

Article 47 

Article 48 

Article 49 

Article 50 

Article 15 

Annex I(1) to (4) 

Annex I(1) to (4) 

Annex 
sub-paragraph 

I(4) 

last 

Article 2(22) 

Annex I(5) to (7) 

Annex I(5) to (7) 

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This Directive 

Directive 
93/6/EEC 

Directive 
98/31/EC 

Directive 
98/33/EC 

Directive 
2002/87/EC 

Directive 
2004/39/EC 

Annex I(8) 

Annex I(9) to (11)  Annex I(8) to (10) 

Annex 
(14) 

I(12) 

to 

Annex 
(14) 

I(12) 

to 

Annex  I(15)  and 
(16) 

Article 2(12) 

Annex 
(41) 

Annex 
(56) 

I(17) 

to 

Annex 
(39) 

I(15) 

to 

I(42) 

to 

Annex  II(1)  and 
(2) 

Annex 
(2) 

II(1)  and 

Annex 
(11) 

II(3) 

to 

Annex III(1) 

Annex  III(1)  first 
sub-paragraph 

Article  1(7)  and 
Annex 3(a) 

Annex III(2) 

Annex III(2) 

Annex 
III(2.1) 
first  to  third  sub-
paragraphs 

Annex 
fourth 
paragraph 

III(2.1) 
sub-

Annex 
fifth 
paragraph 

III(2.1) 
sub-

Annex III(3.1) 

Article  1(7)  and 
Annex 3(b) 

Annex III(3.2) 

Article  1(7)  and 
Annex 3(b) 

Annex 
(3), (3.1) 

III(2.2), 

Annex III(4) to (6)  Article  1(7)  and 

Annex 3(c) 

Annex III(3.2) 

Annex III(8) 

Annex III(4) 

Annex III(11) 

Annex  IV(1) 
(20) 

to 

Annex  VII(1) 
(20) 

to 

Article  1(7)  and 
Annex 5 

Annex IV(21) 

Article 11a 

Article 1(6) 

Annex  V(1) 
(13) 
paragraph 

third 

to 
sub-

Annex  VIII(1)  to 
(13)(ii) 

Article  1(7)  and 
Annex 5 

Annex 
fourth 
paragraph 

V(13) 
sub-

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This Directive 

Directive 
93/6/EEC 

Directive 
98/31/EC 

Directive 
98/33/EC 

Directive 
2002/87/EC 

Directive 
2004/39/EC 

Annex V(13) fifth 
sub-paragraph 
to 
(14) 

Annex 
VIII(13)(iii) 
(14) 

Article  1(7)  and 
Annex 5 

to 

VI(8)(2) 
first 

the 

Annex 
after 
sentence 

Annex VI 

Annex VII 

Annex VIII 

Annex IX 

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