Directive 2006/49/EC of the European Parliament and of the Council of  14 June 2006  on the capital adequacy of investment firms and credit institutions (recast)
Date: 2006-06-14
Institutions: Council of the European Union, European Parliament
Subjects: credit guarantee, credit institution, financial instrument, financial solvency, investment company, management audit

30.6.2006

EN

Official Journal of the European Union

L 177/201

DIRECTIVE 2006/49/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

on the capital adequacy of investment firms and credit institutions (recast)

of 14 June 2006

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE
EUROPEAN UNION,

(4)

Having regard to the Treaty establishing the European Commu-
nity, and in particular Article 47(2) thereof,

Having regard to the proposal from the Commission,

Having regard to the Opinion of the European Economic and
Social Committee (1),

Having regard to the Opinion of the European Central Bank (2),

After consulting the Committee of the Regions,

Acting in accordance with the procedure laid down in Article 251
of the Treaty (3),

Whereas:

(1) Council Directive 93/6/EEC of 15 March 1993 on the
capital adequacy of investment firms and credit institu-
tions (4) has been significantly amended on several
occasions. Now that new amendments are being made to
the said Directive, it is desirable, in order to clarify matters,
that it should be recast.

(2) One of

in financial

instruments (5)

the objectives of Directive 2004/39/EC of

the
European Parliament and of the Council of 21 April 2004
on markets
to allow
investment firms authorised by the competent authorities
of their home Member State and supervised by the same
authorities to establish branches and provide services freely
in other Member States. That Directive accordingly provides
for the coordination of the rules governing the authorisa-
tion and pursuit of the business of investment firms.

is

(3) Directive 2004/39/EC does not, however, establish com-
mon standards for the own funds of investment firms nor
indeed does it establish the amounts of the initial capital of
such firms or a common framework for monitoring the
risks incurred by them.

is necessary and sufficient

It is appropriate to effect only the essential harmonisation
that
to secure the mutual
recognition of authorisation and of prudential supervision
systems; in order to achieve mutual recognition within the
framework of
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.

the internal

(5)

(6)

(7)

Since the objectives of this Directive, namely the establish-
ment of the capital adequacy requirements applying to
investment firms and credit institutions, the rules for their
calculation and the rules for their prudential supervision,
cannot be sufficiently achieved by the Member States and
can therefore, by reason of the scale and the effects of the
proposed 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 does not go beyond
what is necessary in order to achieve its objectives.

It is appropriate to establish different amounts of initial
capital depending on the range of activities that investment
firms are authorised to undertake.

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.

(8) Member States should be able to establish rules stricter than

those provided for in this Directive.

(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.

(1) OJ C 234, 22.9.2005, p. 8.
(2) OJ C 52, 2.3.2005, p. 37.
(3) Opinion of the European Parliament of 28 September 2005 (not yet
published in the OJ) and Decision of the Council of 7 June 2006.
(4) OJ L 141, 11.6.1993, p. 1. Directive as last amended by Directive
2005/1/EC of the European Parliament and of the Council (OJ L 79,
24.3.2005, p. 9).

(5) OJ L 145, 30.4.2004, p. 1.

(10) The Commission Communication of 11 May 1999 entitled
‘Implementing the framework for financial markets: Action
Plan’ listed a number of goals that need to be achieved in
order to complete the internal market in financial services.
The Lisbon European Council of 23 and 24 March 2000 set
the goal of
implementing the action plan by 2005.
Recasting of the provisions on own funds is a key element
of the action plan.

L 177/202

EN

Official Journal of the European Union

30.6.2006

the same risks as credit

(11) Since investment firms face in respect of their trading book
business
is
appropriate for the pertinent provisions of Directive 2006/
48/EC of the European Parliament and of the Council of
14 June 2006 relating to the taking up and pursuit of the
institutions (1)
business of credit
to apply equally to
investment firms.

institutions,

it

(12) The own funds of investment firms or credit institutions
(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
in
particular for the assessment of the solvency of institutions
and for other prudential purposes. Furthermore,
institu-
tions, engage in direct competition with each other in the
internal market. Therefore,
in order to strengthen the
Community financial system and to prevent distortions of
competition, it is appropriate to lay down common basic
standards for own funds.

the competent authorities,

(13) For the purposes of recital (12), it is appropriate for the
laid down in Directive
definition of own funds as
2006/48/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.

(14) As regards credit

institutions, common standards have
already been established for the supervision and monitor-
ing of different types of risks by Directive 2000/12/EC.

(18) With a view to reducing the administrative burden
for institutions with negligible trading-book business in
both absolute and relative terms, such institutions should
be able to apply Directive 2006/48/EC, rather than the
requirements laid down in Annexes I and II
to this
Directive.

(19)

It is important that monitoring of settlement/delivery risks
should take account of the existence of systems offering
adequate protection reducing those risks.

(20)

In any case, institutions should comply with this Directive
as regards the coverage of the foreign-exchange risks on
their overall business. Lower capital requirements should be
imposed for positions in closely correlated currencies,
whether statistically confirmed or arising out of binding
intergovernmental agreements.

(21) The capital requirements for commodity dealers, including
those dealers currently exempt from the requirements of
Directive 2004/39/EC, will be reviewed as appropriate in
conjunction with the review of that exemption as set out in
Article 65(3) of that Directive.

(22) The goal of liberalisation of gas and electricity markets is
both economically and politically important
the
Community. With this in mind, the capital requirements
and other prudential rules to be applied to firms active in
those markets should be proportionate and should not
unduly interfere with achievement of the goal of liberal-
isation. This goal should, in particular, be kept in mind
when the reviews referred to in recital 21 are carried out.

for

(15)

respect,

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

(23) The existence of

internal systems for monitoring and
controlling interest-rate risks on all business of institutions
is a particularly important way of minimising such risks.
Consequently, such systems should be supervised by the
competent authorities.

(16)

incurred by credit

It is necessary to develop common standards for market
institutions and provide a
risks
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.

(17)

It is necessary to provide for the concept of a ‘trading book’
comprising positions in securities and other
financial
instruments which are held for trading purposes and which
are subject mainly to market risks and exposures relating to
certain financial services provided to customers.

(1) See page 1 of this official Journal

(24) Since Directive 2006/48/EC does not establish common
rules for the monitoring and control of large exposures in
activities which are principally subject to market risks, it is
therefore appropriate to provide for such rules.

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

the diversity of

(26) Directive 2006/48/EC states the principle of consolidation.
It does not establish common rules for the consolidation of
institutions which are involved in activities
financial
principally subject to market risks.

30.6.2006

EN

Official Journal of the European Union

L 177/203

(27)

it

is

that

essential

In order to ensure adequate solvency of institutions within
the minimum capital
a group,
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 are available to protect investments where needed, the
minimum capital requirements should apply to individual
institutions within a group, unless this objective can be
effectively achieved by other means.

(28) Directive 2006/48/EC does not apply to groups which
include one or more investment
firms but no credit
institutions. A common framework for the introduction of
the supervision of investment firms on a consolidated basis
should therefore be provided for.

(29)

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 pro-
cesses in place for assessing and maintaining the adequacy
of their internal capital.

(30) Competent authorities should evaluate the adequacy of own
funds of institutions, having regard to the risks to which the
latter are exposed.

(31)

for

the internal banking market

In order
to operate
effectively, the Committee of European Banking Supervisors
this
should contribute to the consistent application of
Directive and to the convergence of supervisory practices
throughout the Community, and should report on a yearly
basis to the Community Institutions on progress made.

(32)

In order for the internal market to operate with increasing
effectiveness it is essential that there should be significantly
enhanced convergence in the implementation and applica-
the provisions of harmonising Community
tion of
legislation.

(33) 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 significantly to enhance the cooperation
between competent authorities. In this context the role of
the consolidating supervisor should be strengthened.

(34)

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

it

(35)

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.

(36) 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
implementing powers
the exercise of
conferred on the Commission (1).

for

(37)

financial services legislation (2),

In its Resolution of 5 February 2002 on the implementa-
tion of
the Parliament
requested that the Parliament and the Council should have
an equal
role in supervising the way in which the
Commission exercises its executive role in order to reflect
the legislative powers of Parliament under Article 251 of
In the solemn declaration made before the
the Treaty.
Parliament the same day, by its President, the Commission
supported this
the
Commission proposed amendments to Decision 1999/
468/EC and then submitted an amended proposal on
22 April 2004. The Parliament considers that this proposal
does not preserve its
In the
Parliament's view, the Parliament and the Council should
have the opportunity of evaluating the conferral of
implementing powers on the Commission within a
determined period. It is therefore appropriate to limit the
period during which the Commission may adopt imple-
menting measures.

request. On 11 December 2002,

legislative prerogatives.

(38) The Parliament should be given a period of three months
from the first
transmission of draft amendments and
implementing measures to allow it to examine them and to
give its opinion. However, in urgent and duly justified cases,
it should be possible to shorten this period. If, within that
period, a resolution is adopted by the Parliament,
the
Commission should re-examine the draft amendments or
measures.

(39)

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.

(40) This Directive respects 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.

(41) The obligation to transpose this Directive into national law
should be confined to those provisions that represent a
substantive
directives.
The obligation to transpose the provisions that remain
unchanged exists under the earlier directives.

compared

change

earlier

to

(42) 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 Part B of Annex VIII,

(1) OJ L 184, 17.7.1999, p. 23.
(2) OJ C 284 E, 21.11.2002, p. 115.

L 177/204

EN

Official Journal of the European Union

30.6.2006

HAVE ADOPTED THIS DIRECTIVE:

CHAPTER I

Subject matter, scope and definitions

S e c t i o n 1

S u b j e c t m a t t e r a n d s c o p e

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 3.

2. A Member State may impose additional or more stringent
requirements on those investment firms and credit institutions
that it has authorised.

(b)

(c)

(d)

in Articles 125 and 140(2) of Directive 2006/48/EC, each
reference to other articles of
that Directive shall be
construed as a reference to Directive 2004/39/EC;

for the purposes of Article 39(3) of Directive 2006/48/EC,
references to the European Banking Committee shall be
construed as references to the Council and the Commission;
and

by way of derogation from Article 140(1) of Directive 2006/
48/EC, where a group does not include a credit institution,
the first sentence of that Article 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’.

S e c t i o n 2

D e f i n i t i o n s

Article 3

Article 2

For the purposes of this Directive the following definitions

1.
shall apply:

1.
Subject to Articles 18, 20, 22 to 32, 34 and 39 of this
Directive, Articles 68 to 73 of Directive 2006/48/EC shall apply
mutatis mutandis to investment firms. In applying Articles 70 to
72 of Directive 2006/48/EC to investment firms, every reference
to a parent credit
institution in a Member State shall be
construed as a reference to a parent investment firm in a Member
State and every reference to an EU parent credit institution shall
be construed as a reference to an EU parent investment firm.

(a)

(b)

‘credit institutions’ means credit institutions as defined in
Article 4(1) of Directive 2006/48/EC;

‘investment firms’ means institutions as defined in Article 4
(1)(1) of Directive 2004/39/EC, which are subject to the
requirements imposed by that Directive, excluding:

Where a credit institution has as a parent undertaking a parent
investment firm in a Member State, only that parent investment
firm shall be subject to requirements on a consolidated basis in
accordance with Articles 71 to 73 of Directive 2006/48/EC.

(i)

credit institutions;

(ii)

local firms as defined in point (p); and

Where an investment firm has as a parent undertaking a parent
credit institution in a Member State, only that parent credit
institution shall be subject to requirements on a consolidated
basis in accordance with Articles 71 to 73 of Directive 2006/48/
EC.

Where a financial holding company has as a 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.

2. When a group covered by paragraph 1 does not include a
credit institution, Directive 2006/48/EC shall apply, subject to
the following:

(iii)

firms which are only authorised to provide the service
of
investment advice and/or receive and transmit
orders from investors without holding money or
securities belonging to their clients and which for that
reason may not at any time place themselves in debt
with those clients;

(c)

‘institutions’ means credit institutions and investment firms;

(d)

‘recognised third-country investment firms’ means firms
meeting the following conditions:

(i)

if

firms which,
they were established within the
Community, would be covered by the definition of
investment firm;

(a)

every reference to credit institutions shall be construed as a
reference to investment firms;

(ii)

firms which are authorised in a third country; and

30.6.2006

EN

Official Journal of the European Union

L 177/205

(iii)

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

(n)

(e)

(f)

(g)

(h)

(i)

(j)

(k)

‘financial instruments’ means any contract that gives rise to
both a financial asset of one party and a financial liability or
equity instrument of another party;

firm in a Member State’ means an
‘parent investment
investment
firm which has an institution or financial
institution as a subsidiary or which holds a participation in
one or both 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;

‘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;

‘over-the-counter (OTC) derivative instruments’ means the
items falling within the list in Annex IV to Directive 2006/
48/EC other than those items to which an exposure value of
zero is attributed under point 6 of Part 2 of Annex III to
that Directive;

‘regulated market’ means a market as defined in Article 4(1)
(14) of Directive 2004/39/EC;

‘convertible’ means a security which, at the option of the
holder, may be exchanged for another security;

‘warrant’ means a security which gives the holder the right
to purchase an underlying asset at a stipulated price until or
at the expiry date of the warrant and which may be settled
by the delivery of
the underlying itself or by cash
settlement;

(l)

‘stock financing’ 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;

(m)

in which an institution or
securities or

‘repurchase agreement’ and ‘reverse repurchase agreement’
mean any agreement
its
counterparty
commodities or
transfers
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 counterparty at one time,
to repurchase them — or
subject
substituted securities or commodities of the same descrip-
tion — at a specified price on a future date specified, or to
be
transferor, being a repurchase
agreement
the institution selling the securities or
commodities and a reverse repurchase agreement for the
institution buying them;

specified, by the
for

to a commitment

that

lending’ and ‘securities or
‘securities or commodities
commodities borrowing’ mean any transaction in which
an institution or its counterparty transfers securities or
commodities against appropriate collateral, subject to a
commitment
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
the institution
transferring the securities or commodities and being
securities or commodities borrowing for the institution to
which they are transferred;

lending for

(o)

(p)

‘clearing member’ means a member of the exchange or the
clearing house which has a direct contractual relationship
with the central counterparty (market guarantor);

‘local firm’ means a firm dealing for its own account on
markets in financial futures or options or other derivatives
and on cash markets for the sole purpose of hedging
positions on derivatives markets, or dealing for
the
accounts of other members of those markets and being
the same markets,
guaranteed by clearing members of
where responsibility for ensuring the performance of
contracts entered into by such a firm is assumed by
clearing members of the same markets;

(q)

‘delta’ means the expected change in an option price as a
proportion of a small change in the price of the instrument
underlying the option;

(r)

‘own funds’ means own funds as defined in Directive 2006/
48/EC; and

(s)

‘capital’ means own funds.

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

For the purposes of point (e), 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, a rate, an
index or the price of another underlying item, and include as a
minimum the instruments specified in Section C of Annex I to
Directive 2004/39/EC.

‘subsidiary undertaking’,
2. The terms ‘parent undertaking’,
‘asset management company’ and ‘financial
institution’ shall
cover undertakings defined in Article 4 of Directive 2006/48/EC.

The terms ‘financial holding company’, ‘parent financial holding
company in a Member State’,
financial holding
company’ and ‘ancillary services undertaking’ shall cover under-
takings defined in Article 4 of Directive 2006/48/EC, save that
every reference to credit institutions shall be read as a reference
to institutions.

‘EU parent

L 177/206

EN

Official Journal of the European Union

30.6.2006

For the purposes of applying Directive 2006/48/EC to
3.
groups covered by Article 2(1) which do not include a credit
institution, the following definitions shall apply:

2. The competent authorities may 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)

‘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/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 (1);

(b)

‘mixed-activity holding company’ means a parent under-
taking, 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 sub-
sidiaries of which include at least one investment firm; and

(c)

‘competent authorities’ means the national authorities
which are empowered by law or regulation to supervise
investment firms.

CHAPTER II

Initial capital

Article 4

For the purposes of
‘initial capital’ shall be
this Directive,
comprised of the items referred to in Article 57(a) and (b) of
Directive 2006/48/EC.

Article 5

in any financial
1. An investment firm that does not deal
instruments for its own account or underwrite issues of financial
instruments on a firm commitment basis, but which holds
clients' money and/or securities and which offers one or more of
the following services, shall have initial capital of EUR 125 000:

(a)

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

(b)

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

(c)

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

(d)

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 instru-
ments in order to invest own funds shall not be considered as
dealing in relation to the services set out in paragraph 1 or for
the purposes of paragraph 3.

3. Member States may reduce the amount referred to in
paragraph 1 to EUR 50 000 where a firm is not authorised to
hold clients' money or securities, to deal for its own account, or
to underwrite issues on a firm commitment basis.

Article 6

Local firms shall have initial capital of EUR 50 000 insofar as
they benefit from the freedom of establishment or to provide
services specified in Articles 31 and 32 of Directive 2004/39/EC.

Article 7

Coverage for the firms referred to in Article 3(1)(b)(iii) shall take
one of the following forms:

(a)

the reception and transmission of
financial instruments;

investors' orders for

(a)

initial capital of EUR 50 000;

(b)

the execution of investors' orders for financial instruments;
or

(c)

the management of individual portfolios of investments in
financial instruments.

(1) OJ L 35, 11.2.2003, p. 1. Directive as amended by Directive 2005/1/

EC.

(b)

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

(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).

30.6.2006

EN

Official Journal of the European Union

L 177/207

The amounts referred to in the first sub-paragraph shall be
periodically reviewed by the Commission in order to take
account of changes in the European Index of Consumer Prices as
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 Council of 9 December
2002 on insurance mediation (1).

Article 8

If a firm as referred to in Article 3(1)(b)(iii) 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)

initial capital of EUR 25 000;

(b)

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

(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).

Article 9

All investment firms other than those referred to in Articles 5 to
8 shall have initial capital of EUR 730 000.

Article 10

1. By way of derogation from Articles 5(1), 5(3), 6 and 9,
Member States may continue an authorisation of investment
firms and firms covered by Article 6 which was in existence
before 31 December 1995, the own funds of which firms or
investment firms are less than the initial capital levels specified
for them in Articles 5(1), 5(3), 6 and 9.

The own funds of such firms or investment firms shall not fall
below the highest reference level calculated after the date of
notification contained in Directive 93/6/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 1 is taken by a
2.
natural or legal person other than the person who controlled it
previously, the own funds of that firm shall attain at least the
level specified for them in Articles 5(1), 5(3), 6 and 9, except in
the case of a first transfer by inheritance made after 31 December

1995, subject to the competent authorities' approval and for a
period of not more than 10 years from the date of that transfer.

3.
In certain specific circumstances, and with the approval of
the competent authorities, in the event of a merger of two or
more investment firms and/or firms covered by Article 6, the
own funds of the firm produced by the merger need not attain
the level specified in Articles 5(1), 5(3), 6 and 9. Nevertheless,
during any period when the level specified in Articles 5(1), 5(3),
6 and 9 has 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.

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

In the event that the own funds of such firms and investment
firms fall below that level, 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.

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 and which are either
free of any restrictive
covenants on their tradability or able to be hedged.

2.
Positions held with trading intent are those held intention-
ally for short-term resale 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
include proprietary
positions and positions arising from client servicing and market
making.

term ‘positions’

shall

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

Institutions

4.
shall establish and maintain systems and
controls to manage their trading book in accordance with
Parts B and D of Annex VII.

(1) OJ L 9, 15.1.2003, p. 3.

Internal hedges may be included in the trading book, in

5.
which case Part C of Annex VII shall apply.

L 177/208

EN

Official Journal of the European Union

30.6.2006

CHAPTER IV

Own funds

Article 12

‘Original own funds’ means the sum of points (a) to (c), less the
sum of points (i) to (k) of Article 57 of Directive 2006/48/EC.

The Commission shall, by 1 January 2009,,submit an appro-
priate proposal to the European Parliament and to the Council
for amendment of this Chapter.

3. The subordinated loan capital referred to in point (c) of the
second subparagraph of paragraph 2 shall have 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 that institution's overall
capital requirements.

Article 13

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.

Subject to paragraphs 2 to 5 of this Article and Articles 14
1.
to 17, the own funds of investment firms and credit institutions
shall be determined in accordance with Directive 2006/48/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 of 25 July 1978
based on Article 54(3) of the Treaty on the annual accounts of
certain types of companies (1).

2. By way of derogation from paragraph 1, the competent
authorities may permit those institutions which are obliged to
meet the capital requirements calculated in accordance with
Articles 21 and 28 to 32 and Annexes I and III to VI to use, for
that purpose only, an alternative determination of own funds. No
part of the own funds used for that purpose may be used
simultaneously to meet other capital requirements.

Such an alternative determination shall be the sum of the items
set out in points (a) to (c) of this subparagraph, minus the item
set out in point (d), with the deduction of that last item being left
to the discretion of the competent authorities:

(a)

(b)

own funds as defined in Directive 2006/48/EC, excluding
only points (l) to (p) of Article 57 of that Directive for those
investment firms which are required to deduct item (d) of
this paragraph from the total of items (a) to (c);

trading-book profits net of any
an institution's net
less net losses on its
foreseeable charges or dividends,
other business, provided that none of those amounts has
already been included in item (a) of this paragraph as one of
the items set out in points (b) or (k) of Article 57 of
Directive 2006/48/EC;

(c)

subordinated loan capital and/or the items referred to in
paragraph 5 of this Article, subject to the conditions set out
in paragraphs 3 and 4 of this Article and in Article 14; and

(d)

illiquid assets as specified in Article 15.

(1) OJ L 222, 14.8.1978, p. 11. Directive as last amended by Directive
2003/51/EC of the European Parliament and of the Council (OJ
L 178, 17.7.2003, p. 16).

4. The subordinated loan capital referred to in point (c) of the
second subparagraph of paragraph 2 may not 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 Annexes I to VI and may approach that maximum only
competent
in particular
authorities.

circumstances

acceptable

to the

5. The competent authorities may permit
to
replace the subordinated loan capital referred to in point (c) of
the second subparagraph of paragraph 2 with points (d) to (h) of
Article 57 of Directive 2006/48/EC.

institutions

Article 14

1. The competent authorities may permit investment firms to
exceed the ceiling for subordinated loan capital set out
in
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 Article 13(5) does not exceed 200 % of the original
own funds left to meet the requirements calculated in accordance
with Articles 21 and 28 to 32 and Annexes I and III to VI,
or 250 % of the same amount where investment firms deduct the
item set out in Article 13(2)(d) when calculating own funds.

2. The competent authorities may permit
the ceiling for
subordinated loan capital set out in 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
points (d) to (h) of Article 57 of Directive 2006/48/EC does not
exceed 250 % of
the original own funds left to meet the
requirements calculated in accordance with Articles 28 to 32 and
Annexes I and III to VI to this Directive.

30.6.2006

EN

Official Journal of the European Union

L 177/209

Article 15

Illiquid assets as
subparagraph of Article 13(2) shall include the following:

referred to in point

(d) of

the second

(a)

(b)

(c)

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

holdings in,
including subordinated claims on, credit or
financial institutions which may be included in the own
funds of those institutions, unless they have been deducted
under points (l) to (p) of Article 57 of Directive 2006/48/
EC or under Article 16(d) of this Directive;

holdings and other investments in undertakings other than
readily
credit or
marketable;

institutions, which are not

financial

(d)

deficiencies in subsidiaries;

(e)

(f)

(g)

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;

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

physical stocks, unless they are already subject to capital
requirements at
in
Articles 18 and 20.

least as stringent as those set out

For the purposes of point (b), where 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 the application
of this Article. They may also waive it in respect of those shares
which are included in an investment firm's trading book.

Article 16

Investment firms included in a group which has been granted the
waiver provided for in Article 22 shall calculate their own funds
in accordance with Articles 13 to 15, subject to the following:

(a)

the illiquid assets referred to in Article 13(2)(d) shall be
deducted;

(b)

the exclusion referred to in point (a) of Article 13(2) shall
not cover those components of points (l) to (p) of Article 57
of Directive 2006/48/EC which an investment firm holds in
respect of undertakings included in the scope of consolida-
tion as defined in Article 2(1) of this Directive;

(c)

the limits referred to in points (a) and (b) of Article 66(1) of
Directive 2006/48/EC shall be calculated with reference to

the original own funds less the components of points (l) to
(p) of Article 57 of that Directive as referred to in point (b)
of this Article which are elements of the original own funds
of those undertakings; and

(d)

the components of points (l)
to (p) of Article 57 of
Directive 2006/48/EC referred to in point (c) of this Article
shall be deducted from the original own funds rather than
from the total of all items as laid down in Article 66(2) of
that Directive for the purposes in particular of Articles 13
(4), 13(5) and 14 of this Directive.

Article 17

1. Where an institution calculates
risk-weighted exposure
amounts for the purposes of Annex II to this Directive in
accordance with Articles 84 to 89 of Directive 2006/48/EC, then
for the purposes of the calculation provided for in point 4 of Part
1 of Annex VII to Directive 2006/48/EC, 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; and

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 counter-
party 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 the provisions of this paragraph.

For the purposes of this Article, Article 153 and 154 of

2.
Directive 2006/48/EC shall apply.

CHAPTER V

S e c t i o n 1

P r o v i s i o n s a g a i n s t r i s k s

Article 18

Institutions shall have own funds which are always more

1.
than or equal to the sum of the following:

(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 V, for their
trading-book business; and

L 177/210

EN

Official Journal of the European Union

30.6.2006

(b)

the capital requirements, calculated in accordance with the
methods and options laid down in Annexes III and IV and,
as appropriate, Annex V, for all of their business activities.

may make use of this approval without conducting its own
assessment.

Article 20

2. By way of derogation from paragraph 1, the competent
authorities may allow institutions
to calculate the capital
requirements for their trading book business in accordance with
Article 75(a) of Directive 2006/48/EC and points 6, 7, and 9 of
Annex II to this Directive, where the size of the trading book
business meets the following requirements:

(a)

the trading-book business of such institutions does not
normally exceed 5 % of their total business;

(b)

their total trading-book positions do not normally exceed
EUR 15 million; and

(c)

the trading-book business of
exceeds 6 % of
total business and their
trading-book positions never exceed EUR 20 million.

such institutions never
total

their

In order to calculate the proportion that

3.
trading-book
business bears to total business for the purposes of points (a) and
(c) of paragraph 2, 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
the
institutions in question, or to a combination of those measures.
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.

to the own funds of

Subject

to paragraphs 2, 3 and 4 of

1.
this Article, and
Article 34 of this Directive, the requirements in Article 75 of
Directive 2006/48/EC shall apply to investment firms.

2. By way of derogation from paragraph 1, competent
authorities may allow investment firms that are not authorised
to provide the investment services listed in points 3 and 6 of
Section A of Annex I to 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 2006/48/EC; and

(b)

the amount laid down in Article 21 of this Directive.

3. By way of derogation from 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
the capital requirements calculated in
accordance with the requirements contained in points (a) to (c) of
Article 75 of Directive 2006/48/EC and the amount laid down in
Article 21 of this Directive:

to the sum of

(a)

investment firms that deal on own account only 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; and

4.
If an institution should happen for more than a short period
to exceed either or both of the limits imposed in paragraph 2(a)
and (b) or either or both of the limits imposed in paragraph 2(c),
it shall be required to meet
the requirements imposed in
paragraph 1(a) in respect of its trading-book business and to
notify the competent authority thereof.

b)

investment firms:

(i)

that do not hold client money or securities;

(ii)

that undertake only dealing on own account;

Article 19

(iii)

that have no external customers;

1.
For the purposes of point 14 of Annex I, subject to the
discretion of the national authorities, a 0 % weighting can be
assigned to debt securities issued by the entities listed in Table 1
of Annex I, where these debt securities are denominated and
funded in domestic currency.

2. By way of derogation from points 13 and 14 of Annex I,
Member States may set a specific risk requirement for any bonds
falling within points 68 to 70 of Part 1 of Annex VI
to
Directive 2006/48/EC which shall be equal to the specific risk
requirement for a qualifying item with the same residual maturity
as such bonds and reduced in accordance with the percentages
given in point 71 of Part 1 to Annex VI to that Directive.

(iv)

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

4.
Investment firms referred to in paragraphs 2 and 3 shall
remain subject to all other provisions regarding operational risk
set out in Annex V of Directive 2006/48/EC.

5. Article 21 shall apply only to investment firms to which
paragraphs (2) or (3) or Article 46 apply and in the manner
specified therein.

Article 21

3.
If, as set out in point 52 of Annex I, a competent authority
approves a third country's collective investment undertaking
(CIU) as eligible, a competent authority in another Member State

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

30.6.2006

EN

Official Journal of the European Union

L 177/211

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, starting from
the day it starts up, the requirement shall be a quarter of the fixed
overheads projected in its business plan, unless an adjustment to
that plan is required by the competent authorities.

S e c t i o n 2

A p p l i c a t i o n o f r e q u i r e m e n t s o n a
c o n s o l i d a t e d b a s i s

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 EU investment
calculation of own funds set out in Article 16;

firm in such a group uses the

investment

all
categories in Article 20(2) and (3);

firms in such a group fall within the

each EU 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 and;

the sum of points

any financial holding company which is the parent financial
holding company in a Member State of any investment firm
in such a group holds at least as much capital, defined here
as
to (h) of Article 57 of
(a)
Directive 2006/48/EC, as the sum of the full book value
of any holdings, subordinated claims and instruments as
referred to in Article 57 of that Directive 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,
asset management companies and ancillary services under-
takings which would otherwise be consolidated.

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

2. By way of derogation from paragraph 1, competent
authorities may permit financial holding companies which are
the parent financial holding company in a Member State of an

investment firm in such a group to use a value lower than the
value calculated under paragraph 1(d), but no lower than the
sum of the requirements imposed in Articles 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
for
investment undertakings of third countries, financial institutions,
asset management companies and ancillary services undertakings
is a notional capital requirement.

this paragraph,

requirement

capital

the

Article 23

The competent authorities shall require investment firms in a
group which has been granted the waiver provided for in
Article 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 them 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,
they shall take other appropriate measures to monitor the risks,
namely large exposures, of
including any
undertakings not located in a Member State.

the whole group,

Where the competent authorities waive the application of capital
requirements on a consolidated basis provided for in Article 22,
the requirements of Article 123 and Chapter 5 of Title V of
Directive 2006/48/EC shall apply on an individual basis, and the
requirements of Article 124 of that Directive shall apply to the
supervision of investment firms on an individual basis.

Article 24

1. By way of derogation from Article 2(2), competent
authorities may exempt investment firms from the consolidated
capital requirement established in that Article, provided that all
the investment firms in the group are covered by Article 20(2)
and the group does not include credit institutions.

2. Where the requirements of paragraph 1 are met, a parent
investment firm in a Member State shall be required to provide
own funds at a consolidated level which are always more than or
equal to the higher of the following two amounts, calculated on
the basis of the parent investment firm's consolidated financial
position and in compliance with Section 3 of this Chapter:

(a)

the sum of the capital requirements contained in points (a)
to (c) of Article 75 of Directive 2006/48/EC; and

(b)

the amount prescribed in Article 21 of this Directive.

L 177/212

EN

Official Journal of the European Union

30.6.2006

3. Where the requirements of paragraph 1 are met, an
investment firm controlled by a financial holding company shall
be required to provide own funds at a consolidated level which
are always more than or equal to the higher of the following two
amounts, calculated on the basis of
the financial holding
company's consolidated financial position and in compliance
with Section 3 of this Chapter:

(a)

the sum of the capital requirements contained in points (a)
to (c) of Article 75 of Directive 2006/48/EC; and

(b)

the amount prescribed in Article 21 of this Directive.

Article 25

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

Where the requirements of the first paragraph are met, a parent
investment firm in a Member State shall be required to provide
own funds at a consolidated level which are always more than or
equal to the sum of the requirements contained in points (a) to
(c) of Article 75 of Directive 2006/48/EC and the amount
prescribed in Article 21 of this Directive, calculated on the basis
of the parent investment firm's consolidated financial position
and in compliance with Section 3 of this Chapter.

Where the requirements of the first paragraph are met, an
investment firm controlled by a financial holding company shall
be required to provide own funds at a consolidated level which
are always more than or equal to the sum of the requirements
contained in points (a) to (c) of Article 75 of Directive 2006/48/
EC and the amount prescribed in Article 21 of this Directive,
calculated on the basis of
the financial holding company's
consolidated financial position and in compliance with Section 3
of this Chapter.

S e c t i o n 3

C a l c u l a t i o n o f c o n s o l i d a t e d r e q u i r e m e n t s

Article 26

1. Where the waiver provided for in Article 22 is not exercised,
the competent authorities may, for the purpose of calculating the
capital requirements set out
in Annexes I and V 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, V and VI.

the competent authorities may allow foreign-
In addition,
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 V. 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 IV and/or Annex V.

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

fulfilment of

simultaneous

to the

the

(a)

(b)

(c)

such undertakings have been authorised in a third country
and either satisfy the definition of credit institution set out
in Article 4(1) of Directive 2006/48/EC or are recognised
third-country investment firms;

such undertakings comply, on an individual basis, with
capital adequacy rules equivalent to those laid down in this
Directive; and

no regulations exist in the third countries in question which
might significantly affect the transfer of funds within the
group.

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

(a)

(b)

there is a satisfactory allocation of capital within the group;
and

the regulatory, legal or contractual framework in which the
institutions operate is such as to guarantee mutual financial
support within the group.

Furthermore,

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

Article 27

In the calculation of own funds on a consolidated basis

1.
Article 65 of Directive 2006/48/EC shall apply.

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

IV in the calculation of

S e c t i o n 4

M o n i t o r i n g a n d c o n t r o l o f

l a r g e e x p o s u r e s

Article 28

1.
Institutions shall monitor and control their large exposures
in accordance with Articles 106 to 118 of Directive 2006/48/EC.

2. By way of derogation from paragraph 1, institutions which
calculate the capital requirements for their trading-book business

30.6.2006

EN

Official Journal of the European Union

L 177/213

in accordance with Annexes I and II, and, as appropriate,
Annex V to this Directive, shall monitor and control their large
exposures in accordance with Articles 106 to 118 of Direc-
tive 2006/48/EC subject
to the amendments laid down in
Articles 29 to 32 of this Directive.

In order to calculate the exposure which arises 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 the second subparagraph of Article 13(2) to be zero.

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

this Section,

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 110 of
Directive 2006/48/EC.

Article 29

1. The exposures to individual clients which arise on the
trading book shall be calculated by summing the following items:

(a)

the excess — where positive — of an institution's long
the financial
positions over
its short positions in all
instruments issued by the client
the net
position in each of
instruments being
calculated according to the methods laid down in Annex I;

the different

in question,

(b)

the net exposure, in the case of the underwriting of a debt
or an equity instrument; and

(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, for the calculation of exposure values.

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 point 41 of Annex I.

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

3. The sum of the exposures to an individual client or group of
connected clients in paragraph 1 shall be limited in accordance
with Articles 111 to 117 of Directive 2006/48/EC.

4. By derogation from paragraph 3 competent authorities may
allow assets constituting claims and other exposures on
recognised third-country investment
firms and recognised
clearing houses and exchanges in financial instruments to be
subject to the same treatment accorded to those on institutions
laid out in Articles 113(3)(i), 115(2) and 116 of Directive 2006/
48/EC.

Article 31

The competent authorities may authorise the limits laid down in
Articles 111 to 117 of Directive 2006/48/EC to be exceeded if
the following conditions are met:

For the purposes of point (b), pending 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.

For the purposes of point (c), Articles 84 to 89 of Directive 2006/
48/EC shall be excluded from the reference in point 6 of Annex II
to this Directive.

(a)

(b)

2. The exposures to groups of connected clients on the trading
book shall be calculated by summing the exposures to individual
clients in a group, as calculated in paragraph 1.

the exposure on the non-trading book to the client or
group of clients in question does not exceed the limits laid
down in Articles 111 to 117 of Directive 2006/48/EC, those
limits being calculated with reference to own funds as
specified in that Directive, so that the excess arises entirely
on the trading book;

the institution meets an additional capital requirement on
the excess in respect of the limits laid down in Article 111
(1) and (2) of Directive 2006/48/EC, that additional capital
requirement being calculated in accordance with Annex VI
to that Directive;

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 112 to 117
of Directive 2006/48/EC.

(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 shall not exceed 500 % of the
institution's own funds;

(d)

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

L 177/214

EN

Official Journal of the European Union

30.6.2006

(e)

institutions shall report to the competent authorities every
three months all cases where the limits laid down in
Article 111(1) and (2) of Directive 2006/48/EC have been
exceeded during the preceding three months.

the
In the absence of readily available market prices,
3.
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.

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 shall be reported.

S e c t i o n 6

Article 32

R i s k m a n a g e m e n t a n d c a p i t a l a s s e s s m e n t

that

requirements

1. The competent authorities shall establish procedures to
prevent institutions from deliberately avoiding the additional
capital
they would otherwise incur, on
exposures exceeding the limits laid down in Article 111(1) and
(2) of Directive 2006/48/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.

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 institutions which
are allowed to use the alternative determination of own funds
under Article 13(2) to use that determination for the purposes of
Articles 30(2), 30(3) and 31 provided that
the institutions
concerned are required to meet all of the obligations set out in
Articles 110 to 117 of Directive 2006/48/EC, in respect of the
exposures which arise outside their trading books by using own
funds as defined in that Directive.

S e c t i o n 5

Va l u a t i o n o f p o s i t i o n s f o r r e p o r t i n g
p u r p o s e s

Article 33

trading book positions shall be subject

1. All
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. The former value shall contain an appropriate degree of
certainty having regard to the dynamic nature of trading book
positions, the demands of prudential soundness and the mode of
operation and purpose of capital requirements in respect of
trading book positions.

2. Trading book positions shall be re-valued at least daily.

Article 34

Competent authorities shall require that every investment firm,
as well as meeting the requirements set out in Article 13 of
Directive 2004/39/EC, shall meet the requirements set out in
Articles 22 and 123 of Directive 2006/48/EC, subject to the
provisions on level of application set out in Articles 68 to 73 of
that Directive.

S e c t i o n 7

R e p o r t i n g r e q u i r e m e n t s

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
assessment of
their compliance with the rules adopted in
accordance with this Directive. Member States shall also ensure
that
internal control mechanisms and administrative and
accounting procedures of the institutions permit the verification
of their compliance with such rules at all times.

the information necessary for

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

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

4. Credit institutions shall be obliged to report in the manner
specified by the competent authorities as often as they are
obliged to report under Directive 2006/48/EC.

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.

30.6.2006

EN

Official Journal of the European Union

L 177/215

CHAPTER VI

S e c t i o n 1

C o m p e t e n t a u t h o r i t i e s

Article 36

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

inform the Commission thereof,

2. The competent authorities shall be 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.

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

S e c t i o n 2

S u p e r v i s i o n

Article 37

1. Chapter 4 of Title V of Directive 2006/48/EC shall apply
mutatis mutandis to the supervision of investment firms in
accordance with the following:

(a)

(b)

(c)

references to Article 6 of Directive 2006/48/EC shall be
construed as references to Article 5 of Directive 2004/39/
EC;

references to Article 22 and 123 of Directive 2006/48/EC
shall be construed s references to Article 34 of
this
Directive; and

references to Articles 44 to 52 of Directive 2006/48/EC
shall be construed 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
firm, Title V,
institution and an investment
Chapter 4 of Directive 2006/48/EC shall apply to the supervision
of institutions as if references to credit institutions were to
institutions.

Article 38

1. The competent authorities of
the Member States shall
cooperate closely in the performance of the duties provided for
in this Directive, particularly where investment services are
provided on the basis of the freedom to provide services or
through the establishment of branches.

The competent authorities shall on request supply one another
with all information likely to facilitate the supervision of the
capital adequacy of institutions, in particular the verification of
their compliance with the rules laid down in this Directive.

2. Any exchange of information between competent autho-
rities which is provided for in this Directive shall be subject to the
following obligations of professional secrecy:

(a)

(b)

for investment firms, those imposed in Article 54 and 58 of
Directive 2004/39/EC; and

for credit institutions, those imposed in Articles 44 to 52 of
Directive 2006/48/EC.

CHAPTER VII

Disclosure

Article 39

The requirements set out in Title V, Chapter 5 of Directive 2006/
48/EC shall apply to investment firms.

CHAPTER VIII

S e c t i o n 1

Article 40

the purposes of

the calculation of minimum capital
For
requirements for counterparty risk under this Directive, and
for the calculation of minimum capital requirements for credit
risk under Directive 2006/48/EC, and without prejudice to the
provisions of Part 2, point 6 of Annex III to that Directive,
exposures to recognised third-country investment firms and
exposures to recognised clearing houses and exchanges shall be
treated as exposures to institutions.

S e c t i o n 2

P o w e r s o f e x e c u t i o n

Article 22

2. Article 129(2) of Directive 2006/48/EC shall also apply to
the recognition of internal models of institutions under Annex V
to this Directive where the application is submitted by an EU
parent credit institution and its subsidiaries or an EU parent
investment firm and its subsidiaries, or jointly by the subsidiaries
of an EU parent financial holding company.

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

1. The Commission shall decide on any technical adaptations
in the following areas in accordance with the procedure referred
to in Article 42(2):

(a)

(b)

clarification of the definitions in Article 3 in order to
ensure uniform application of this Directive;

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

L 177/216

EN

Official Journal of the European Union

30.6.2006

(c)

(d)

(e)

(f)

(g)

adjustment of the amounts of initial capital prescribed in
Articles 5 to 9 and the amount referred to in Article 18(2)
to take account of developments in the economic and
monetary field;

the categories of

in
adjustment of
Article 20(2) and (3) to take account of developments on
financial markets;

investment

firms

clarification of the requirement laid down in Article 21 to
ensure uniform application of this Directive;

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

adjustment of the technical provisions in Annexes I to VII
as a result of developments on financial markets, risk
measurement, accounting standards or requirements which
take account of Community legislation or which have
regard to convergence of supervisory practices; or

(h)

technical adaptations to take account of the outcome of the
review referred to in Article 65(3) of Directive 2004/39/EC.

2. None of the implementing measures enacted may change
the essential provisions of this Directive

Article 42

1. The Commission shall be assisted by the European Banking
Committee established by Commission Decision 2004/10/EC (1)
of 5 November 2003 (hereinafter referred to as ‘the Committee’).

2. Where reference is made to this paragraph, the procedure
laid down in Article 5 of Decision 1999/468/EC shall apply,
having regard to the provisions of Article 7(3) and 8 thereof.

Directive, to investment firms calculating risk-weighted exposure
amounts, for the purposes of Annex II to this Directive,
in
accordance with Articles 84 to 89 of Directive 2006/48/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 44

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 their business lines calculated in accordance with Article 20 of
this Directive and points 1 to 4 of Part 2 of Annex X to
Directive 2006/48/EC, Member States may apply a percentage of
15 % to the business line ‘trading and sales’.

Article 45

set out

investment

include any excesses

firms to
1. Competent authorities may permit
exceed the limits concerning large exposures
in
Article 111 of Directive 2006/48/EC. Investment firms need
not
in their calculation of capital
requirements exceeding such limits, as set out in Article 75(b)
of that Directive. This discretion is available until 31 December
2010 or the date of entry into force of any modifications
large exposures pursuant to
consequent to the treatment of
Article 119 of Directive 2006/48/EC, whichever is the earlier. For
this discretion to be exercised, the following conditions shall be
met:

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

(a)

firm provides

services or
the investment
investment
investment activities related to the financial
instruments
listed in points 5, 6, 7, 9 and 10 of Section C of Annex I to
Directive 2004/39/EC;

3. Without prejudice to the implementing measures already
adopted, upon expiry of a two-year period following the
adoption of this Directive, and by 1 April 2008, the application
of the provisions of this Directive requiring the adoption of
technical rules, amendments and decisions in accordance with
paragraph 2 shall be suspended. Acting on a proposal from the
Commission and in accordance with the procedure laid down in
Article 251 of the Treaty, the Parliament and the Council may
renew those provisions and, to that end, shall review them prior
to the expiry of the period or by the date referred to in this
paragraph, whichever the earlier.

4. The Committee shall adopt its Rules of Procedure

S e c t i o n 3

T r a n s i t i o n a l p r o v i s i o n s

Article 43

Article 152(1) to (7) of Directive 2006/48/EC shall apply, in
accordance with Article 2 and Chapter V, Sections 2 and 3 of this

(1) OJ L 3, 7.1.2004, p. 36.

(b)

the investment firm does not provide such investment
services or undertake such investment activities for, or on
behalf of, retail clients;

c)

(d)

breaches of the limits referred to in the introductory part of
this paragraph arise in connection with exposures resulting
from contracts that are financial instruments as listed in
point (a) and relate to commodities or underlyings within
the meaning of point 10 of Section C of Annex I to
Directive 2004/39/EC (MiFID) and are calculated in
accordance with Annexes III and IV of Directive 2006/48/
EC, or
resulting from
contracts concerning the delivery of commodities or
emission allowances; and

in connection with exposures

the investment
firm has a documented strategy for
managing and, in particular, for controlling and limiting
exposures.
risks

arising from the

concentration of

30.6.2006

EN

Official Journal of the European Union

L 177/217

The investment firm shall inform the competent authorities
of this strategy and all material changes to it without delay.
The investment firm shall make appropriate arrangements
to ensure a continuous monitoring of the creditworthiness
of borrowers, according to their impact on concentration
risk. These arrangements shall enable the investment firm
to react adequately and sufficiently promptly to any
deterioration in that creditworthiness.

2. Where an investment firm exceeds the internal limits set
according to the strategy referred to in point (d) of paragraph 1, it
shall notify the competent authority without delay of the size
and nature of the excess and of the counterparty.

Article 46

By way of derogation from Article 20(1), until 31 December
2011 competent authorities may choose, on a case-by-case basis,
not to apply the capital requirements arising from point (d) of
Article 75 of Directive 2006/48/EC in respect of investment
firms to which Article 20(2) and (3) do not apply, whose total
trading book positions never exceed EUR 50 million and whose
average number of relevant employees during the financial year
does not exceed 100.

Instead, the capital requirement in relation to those investment
firms shall be at least the lower of:

(a)

the capital requirements arising from point (d) of Article 75
of Directive 2006/48/EC; and

b)

12/88 of the higher of the following:

Article 48

1. The provisions on capital requirements as laid down in this
Directive and Directive 2006/48/EC shall not apply to invest-
ment firms whose main business consists exclusively of the
provision of investment services or activities in relation to the
financial
instruments set out in points 5, 6, 7, 9 and 10 of
Section C of Annex I to Directive 2004/39/EC and to whom
Directive 93/22/EEC (1) did not apply on 31 December 2006.
This exemption is available until 31 December 2010 or the date
of entry into force of any modifications pursuant to paragraphs 2
and 3, whichever is the earlier.

2. As part of
the review required by Article 65(3) of
Directive 2004/39/EC, the Commission shall, on the basis of
public consultations and in the light of discussions with the
competent authorities, report to the Parliament and the Council
on:

(a)

(b)

an appropriate regime for the prudential supervision of
investment firms whose main business consists exclusively
of the provision of
investment services or activities in
relation to the commodity derivatives or derivatives
contracts set out in points 5, 6, 7, 9 and 10 of Section C
of Annex I to Directive 2004/39/EC; and

the desirability of amending Directive 2004/39/EC to create
a further category of investment firm whose main business
consists exclusively of the provision of investment services
or activities in relation to the financial instruments set out
in points 5, 6, 7, 9 and 10 of Section C of Annex I to
Directive 2004/39/EC relating to energy supplies (including
electricity, coal, gas and oil).

(i)

the sum of
the capital requirements contained in
points (a) to (c) of Article 75 of Directive 2006/48/EC;
and

3. On the basis of the report referred to in paragraph 2, the
Commission may submit proposals for amendments to this
Directive and to Directive 2006/48/EC

(ii)

the amount laid down in Article 21 of this Directive,
notwithstanding Article 20(5).

If point (b) applies, an incremental increase shall be applied on at
least an annual basis.

Applying this derogation shall not result in a reduction in the
overall level of capital requirements for an investment firm, in
comparison to the requirements as at 31 December 2006, unless
such a reduction is prudentially justified by a reduction in the
size of the investment firm's business.

Article 47

Until 31 December 2009 or any earlier date specified by the
competent authorities on a case-by-case basis, institutions that
have received specific risk model recognition prior to 1 January
2007 in accordance with point 1 of Annex V may, for that
existing recognition,
treat points 4 and 8 of Annex V to
Directive 93/6/EEC as those points stood prior to 1 January
2007.

S e c t i o n 4

F i n a l p r o v i s i o n s

Article 49

the laws,

1. Member States shall adopt and publish, by 31 December
2006,
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, 41, 43, 44, 50 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 1 January 2007.

(1) Council Directive 93/22/EEC of 10 May 1993 on investment services
in the securities field (OJ L 141, 11.6.1993, p. 27). Directive as last
amended by Directive 2002/87/EC.

L 177/218

EN

Official Journal of the European Union

30.6.2006

When Member States adopt those measures, they shall contain a
reference to this Directive or 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 the directives repealed by this
Directive shall be construed as references to this Directive.

2. Member States shall communicate to the Commission the
text of the main provisions of national law which they adopt in
the field covered by this Directive.

Article 50

1. Article 152(8) to (14) of Directive 2006/48/EC shall apply
mutatis mutandis for the purposes of this Directive subject to the
following provisions which shall apply where the discretion
referred to in Article 152(8) of Directive 2006/48/EC is
exercised:

(a)

references in point 7 of Annex II to this Directive to
to
Directive 2006/48/EC shall be read as
Directive 2000/12/EC as that Directive stood prior to
1 January 2007; and

references

(b)

point 4 of Annex II to this Directive shall apply as it stood
prior to 1 January 2007.

2. Article 157(3) of Directive 2006/48/EC shall apply mutatis
mutandis for the purposes of Articles 18 and 20 of this Directive.

Article 51

By 1 January 2011, the Commission shall review and report on
the application of this Directive and submit its report to the

Parliament and the Council
proposals for amendment.

together with any appropriate

Article 52

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
the Directives set out in
law of
Annex VIII, Part B.

References made to the repealed directives shall be construed as
being made to this Directive and should be read in accordance
with the correspondence table set out in Annex IX.

Article 53

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

Article 54

This Directive is addressed to the Member States.

Done at Strasbourg, 14 June 2006.

For the European Parliament
The President
J. BORRELL FONTELLES

For the Council
The President
H. WINKLER

30.6.2006

EN

Official Journal of the European Union

L 177/219

ANNEX I

CALCULATING CAPITAL REQUIREMENTS FOR POSITION RISK

GENERAL PROVISIONS

Netting

1.

2.

3.

4.

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 points 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
point 14.

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.

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

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 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 first category set out in Table 1 in point 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 first category set out in Table 1 in point 14 for purposes of
specific risk, and the debt instrument under whichever column is appropriate for it in the same table.

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 V. The competent
authorities may also allow the capital requirement for an OTC derivatives contract of the type referred to in this point
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 V.

For the purposes of this point, ‘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.

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.

Other risks, apart from the delta risk, associated with options 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

L 177/220

EN

Official Journal of the European Union

30.6.2006

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 V. The
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 V. 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.

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

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.

A.

TREATMENT OF THE PROTECTION SELLER

8. When calculating the capital requirement for market risk of the party who assumes the credit risk (the ‘protection
seller’), unless specified differently, the notional amount of the credit derivative contract must be used. For the purpose
of calculating the specific risk charge, other than for total return swaps, the maturity of the credit derivative contract is
applicable instead of the maturity of the obligation. Positions are determined as follows:

(i)

(ii)

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 with a maturity equivalent to the period until the next
interest fixing and which is assigned a 0 % risk weight under Annex VI of Directive 2006/48/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 reference entity, unless the derivative is
rated externally and meets the conditions for a qualifying debt item, in which case a long position in the
derivative is recorded. If premium or interest payments are due under the product, these cash flows must be
represented as notional positions in government bonds.

(iii) A single name credit linked note creates a long position in the general market risk of the note itself, as an
interest rate product. For the purpose of specific risk, a synthetic long position is created in an obligation of the
reference entity. An additional long position is created in the issuer of the note. Where the credit linked note has
an external rating and meets the conditions for a qualifying debt item, a single long position with the specific
risk of the note need only be recorded.

(iv)

In addition to a long position in the specific risk of the issuer of the note, a multiple name credit linked note
providing proportional protection creates a position in each reference entity, 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.

Where a multiple name credit linked note has an external rating and meets the conditions for a qualifying debt
item, a single long position with the specific risk of the note need only be recorded.

(v)

A first-asset-to-default credit derivative 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 point, the maximum payment amount may be taken as the capital
requirement for specific risk.

30.6.2006

EN

Official Journal of the European Union

L 177/221

A second-asset-to-default credit derivative 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 point,
this amount may be taken as the capital requirement for specific risk.

If a first or second-asset to default derivative is externally rated and meets the conditions for a qualifying debt
item, then the protection seller need only calculate one specific risk charge reflecting the rating of the derivative.

B.

TREATMENT OF THE PROTECTION BUYER

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 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).

9.

Institutions which mark to market and manage the interest‑rate risk on the derivative instruments covered in points 4
to 7 on a discounted‑cash‑flow basis may use sensitivity models to calculate the positions referred to in those points
and may use them for any bond which is amortised 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 point 20. The positions shall be included
in the calculation of capital requirements according to the provisions laid down in points 17 to 32.

10.

Institutions which do not use models under point 9 may, with the approval of the competent authorities, treat as fully
offsetting any positions in derivative instruments covered in points 4 to 7 which meet the following conditions at
least:

(a)

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

(b)

the reference rate (for floating‑rate positions) or coupon (for fixed‑rate positions) is closely matched; and

(c)

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; and

(iii)

over one year hence: within 30 days.

11.

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 11.

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

13. Net positions shall be classified according to the currency in which they are denominated and shall calculate the

capital requirement for general and specific risk in each individual currency separately.

L 177/222

EN

Official Journal of the European Union

30.6.2006

Specific risk

14.

The institution shall assign its net positions in the trading book, as calculated in accordance with point 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 in that table. 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

Categories

Specific risk capital charge

Debt securities issued or guaranteed by central governments, issued
by central banks, international organisations, multilateral develop-
ment banks or Member States' regional government or local
authorities which would qualify for credit quality step 1 or which
would receive a 0 % risk weight under the rules for the risk
weighting of exposures under Articles 78 to 83 of Directive 2006/
48/EC.

0 %

Debt securities issued or guaranteed by central governments, issued
by central banks, international organisations, multilateral develop-
ment banks or Member States' regional governments or local
authorities which would qualify for credit quality step 2 or 3 under
the rules for the risk weighting of exposures under Articles 78 to 83
of Directive 2006/48/EC, and debt securities issued or guaranteed
by institutions which would qualify for credit quality step 1 or 2
under the rules for the risk weighting of exposures under Articles 78
to 83 of Directive 2006/48/EC, and debt securities issued or
guaranteed by institutions which would qualify for credit quality
step 3 under the rules for the risk weighting of exposures under
point 28, Part 1 of Annex VI to Directive 2006/48/EC, and debt
securities issued or guaranteed by corporates which would qualify
for credit quality step 1 or 2 under the rules for the risk weighting
of exposures under Articles 78 to 83 of Directive 2006/48/EC.
Other qualifying items as defined in point 15.

Debt securities issued or guaranteed by central governments, issued
by central banks, international organisations, multilateral develop-
ment banks or Member States' regional governments or local
authorities or institutions which would qualify for credit quality step
4 or 5 under the rules for the risk weighting of exposures under
Articles 78 to 83 of Directive 2006/48/EC, and debt securities
issued or guaranteed by institutions which would qualify for credit
quality step 3 under the rules for the risk weighting of exposures
under point 26 of Part 1 of Annex VI to Directive 2006/48/EC, and
debt securities issued or guaranteed by corporates which would
qualify for credit quality step 3 or 4 under the rules for the risk
weighting of exposures under Articles 78 to 83 of Directive 2006/
48/EC.
Exposures for which a credit assessment by a nominated ECAI is not
available.

Debt securities issued or guaranteed by central governments, issued
by central banks, international organisations, multilateral develop-
ment banks or Member States' regional governments or local
authorities or institutions which would qualify for credit quality step
6 under the rules for the risk weighting of exposures under
Articles 78 to 83 of Directive 2006/48/EC, and debt securities
issued or guaranteed by corporates which would qualify for credit
quality step 5 or 6 under the rules for the risk weighting of
exposures under Articles 78 to 83 of Directive 2006/48/EC.

0,25 % (residual term to final maturity 6
months or less)
1,00 % (residual term to final maturity
greater than 6 and up to and including 24
months)
1,60 % (residual term to final maturity
exceeding 24 months)

8,00 %

12,00 %

30.6.2006

EN

Official Journal of the European Union

L 177/223

For institutions which apply the rules for the risk weighting of exposures under Articles 84 to 89 of Directive 2006/
48/EC, to qualify for a credit quality step the obligor of the exposure shall have an internal rating with a PD equivalent
to or lower than that associated with the appropriate credit quality step under the rules for the risk weighting of
exposures to corporates under Articles 78 to 83 of that Directive.

Instruments issued by a non-qualifying issuer shall receive a specific risk capital charge of 8 % or 12 % according to
Table 1. Competent authorities may require institutions to apply a higher specific risk charge to such instruments and/
or to disallow offsetting for the purposes of defining the extent of general market risk between such instruments and
any other debt instruments.

Securitisation exposures that would be subject to a deduction treatment as set out in Article 66(2) of Directive 2006/
48/EC, or risk-weighted at 1,250 % as set out in Part 4 of Annex IX to that Directive, shall be subject to a capital
charge that is no less than that set out under those treatments. Unrated liquidity facilities shall be subject to a capital
charge that is no less than that set out in Part 4 of Annex IX to Directive 2006/48/EC.

15.

For the purposes of point 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 2006/48/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), under the approach described in Title V, Chapter 2, Section 3,
Sub‑section 2 of Directive 2006/48/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); and

(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;

long and short positions in assets issued by institutions subject to the capital adequacy requirements set out in
Directive 2006/48/EC which are considered by the institutions concerned to be sufficiently liquid and whose
investment quality is, according to the institution's own discretion, at least equivalent to that of the assets
referred to under point (a); and

securities issued by institutions that are deemed to be of equivalent, or higher, credit quality than those
associated with credit quality step 2 under the rules for the risk weighting of exposures to institutions set out in
Articles 78 to 83 of Directive 2006/48/EC and that are subject to supervisory and regulatory arrangements
comparable to those under this Directive.

(d)

(e)

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 point 14
to instruments that show a particular risk because of the insufficient solvency of the issuer.

General risk

(a) Maturity-based

17.

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 point 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

L 177/224

EN

Official Journal of the European Union

30.6.2006

18.

19.

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.

The institution shall assign its net positions to the appropriate maturity bands in column 2 or 3, as appropriate, in
Table 2 in point 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.

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 shall then be calculated.

20. 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

Maturity band

Zone

Coupon of 3 % or more

Coupon of less than
3 %

Weighting (in %)

Assumed interest
rate change (in %)

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

> 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

0,00

0,20

0,40

0,70

1,25

1,75

2,25

2,75

3,25

3,75

4,50

5,25

6,00

8,00

> 20 years

12,50

—

1,00

1,00

1,00

0,90

0,80

0,75

0,75

0,70

0,65

0,60

0,60

0,60

0,60

0,60

30.6.2006

EN

Official Journal of the European Union

L 177/225

21.

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 point 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.

22. The institution may, if it wishes, reverse the order in point 21 so as to calculate the matched weighted position

between zones two and three before calculating that position between zones one and two.

23. 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.

24. Residual positions, following the three separate matching calculations in points 21, 22 and 23, shall be summed.

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

(a)

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

(b)

40 % of the matched weighted position in zone one;

(c)

30 % of the matched weighted position in zone two;

(d)

30 % of the matched weighted position in zone three;

(e)

40 % of the matched weighted position between zones one and two and between zones two and three (see
point 21);

(f)

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

(g)

100 % of the residual unmatched weighted positions.

(b) Duration-based

26. The competent authorities 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 points 17 to 25, provided that the institution does so on a consistent basis.

27. Under a system referred to in point 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.

28. 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:

D = ððΣt = 1

m

(cid:16)
ðt CtÞ=ðð1 þ rÞtÞ

(cid:17)
Þ=ðΣt = 1

(cid:16)
ðCtÞ=ðð1 þ rÞtÞ

(cid:17)

m

ÞÞ

where:

R = yield to maturity (see point 25),

Ct = cash payment in time t,

M = total maturity (see point 25).

L 177/226

EN

Official Journal of the European Union

30.6.2006

29. 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

(in years)

Assumed interest (change in %)

One

Two

> 0 ≤ 1,0

> 1,0 ≤ 3,6

Three

> 3,6

1,0

0,85

0,7

30. 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).

31.

The institution shall calculate 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 points 21 to 24.

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

(a)

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

(b)

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

(c)

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

(d)

100 % of the residual unmatched duration-weighted positions.

EQUITIES

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

Specific risk

34. The institution shall sum all its net long positions and all its net short positions in accordance with point 1. It shall

multiply its overall gross position by 4 % in order to calculate its capital requirement against specific risk.

35. By derogation from point 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:

(a)

the equities shall not be those of issuers which have issued only traded debt instruments that currently attract an
8 % or 12 % requirement in Table 1 to point 14 or that attract a lower requirement only because they are
guaranteed or secured;

(b)

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

(c)

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

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

30.6.2006

EN

Official Journal of the European Union

L 177/227

General risk

36.

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

Stock-index futures

37.

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, and may, subject to the approval of
the competent authorities, be netted against opposite positions in the underlying equities themselves.

38. 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.

39. By derogation from points 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 point 33, but disregarded in the calculation of the overall gross position in the same point.

40.

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.

UNDERWRITING

41.

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, it shall reduce the net positions by the reduction factors in Table 4

Table 4

working day 0:

100 %

working day 1:

working days 2 to 3:

working day 4:

working day 5:

after working day 5:

90 %

75 %

50 %

25 %

0 %.

‘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.

L 177/228

EN

Official Journal of the European Union

30.6.2006

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

points 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 the following situations:

(a)

the two legs consist of completely identical instruments; or

(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 exposure (i.e., the cash position). The maturity of the swap itself may
be different from that of the underlying exposure.

In these situations, 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 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 falls under point 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; and

(ii)

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

(b)

(c)

the position falls under point 43(a) or point 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); or

the position falls under point 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 situations, 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 situations not falling under points 43 to 45, a specific risk capital charge will be assessed against both sides of
the positions.

Capital charges for CIUs in the trading book

47.

The capital requirements for positions in 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 points 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 the provisions of the fourth paragraph of point 2.1
of Annex III or the sixth paragraph of point 12 of Annex V (commodity risk) taken together with the fourth
paragraph of point 2.1 of Annex III, where the modified gold treatment set out in those points 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 %.

30.6.2006

EN

Official Journal of the European Union

L 177/229

49.

Institutions may determine the capital requirement for positions in CIUs which meet the criteria set out in point 51, by
the methods set out in points 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

51.

The general eligibility criteria for using the methods in points 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; and

(iv)

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

(b)

(c)

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;

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; and

(e)

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

52. Third country CIUs may be eligible if the requirements in points (a) to (e) of point 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)

(b)

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; and

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 CIU and the index or basket of equities or
debt securities it tracks.

L 177/230

EN

Official Journal of the European Union

30.6.2006

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 mandate; and

(c)

should the capital requirement for position risk (general and specific) according to this point exceed that set out
in point 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 under points 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.

30.6.2006

EN

Official Journal of the European Union

L 177/231

CALCULATING CAPITAL REQUIREMETNS FOR SETTLEMENT AND COUNTERPARTY CREDIT RISK

ANNEX II

SETTLEMENT/DELIVERY RISK

1.

In the case of transactions in which debt instruments, equities, foreign currencies 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, foreign currency 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 Table 1 in order to calculate its capital
requirement.

Table 1

Number of working days after due settlement date

( %)

8

50

75

100

5 — 15

16 — 30

31 — 45

46 or more

FREE DELIVERIES

2.

An institution shall be required to hold own funds, as set out in Table 2, if:

(a)

it has paid for securities, foreign currencies or commodities before receiving them or it has delivered securities,
foreign currencies or commodities before receiving payment for them; and

(b)

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

Table 2

Capital treatment for free deliveries

Transaction Type

Up to first contractual
payment or delivery leg

From first contractual
payment or delivery leg
up to four days after
second contractual
payment or delivery leg

From 5 business days post
second contractual payment
or delivery leg until
extinction of the transaction

Free delivery

No capital charge

Treat as an exposure

Deduct value transferred
plus current positive
exposure from own
funds

3.

In applying a risk weight to free delivery exposures treated according to column 3 of Table 2, institutions using the
approach set out in Articles 84 to 89 of Directive 2006/48/EC, may assign PDs to counterparties, for which they have
no other non‑trading book exposure, on the basis of the counterparty's external rating. Institutions using own
estimates of
loss given defaults (‘LGDs’) may apply the LGD set out in point 8 of Part 2 of Annex VII to
Directive 2006/48/EC to free delivery exposures treated according to column 3 of Table 2 provided that they apply it
institutions using the approach set out in Articles 84 to 89 of Directive
to all such exposures. Alternatively,

L 177/232

EN

Official Journal of the European Union

30.6.2006

2006/48/EC may apply the risk weights, as set out in Articles 78 to 83 of that Directive provided that they apply them
to all such exposures or may apply a 100 % risk weight to all such exposures.

If the amount of positive exposure resulting from free delivery transactions is not material, institutions may apply a
risk weight of 100 % to these exposures.

4.

In cases of a system wide failure of a settlement or clearing system, competent authorities may waive the capital
requirements calculated as set out in points 1 and 2 until the situation is rectified. In this case, the failure of a
counterparty to settle a trade shall not be deemed a default for purposes of credit risk.

COUNTERPARTY CREDIT RISK (CCR)

5.

An institution shall be required to hold capital against the CCR arising from exposures due to the following:

(a) OTC derivative instruments and credit derivatives;

(b)

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

(c) margin lending transactions based on securities or commodities; and

(d)

long settlement transactions.

6.

Subject to the provisions of points 7 to 10, exposure values and risk‑weighted exposure amounts for such exposures
shall be calculated in accordance with the provisions of Section 3 of Chapter 2 of Title V of Directive 2006/48/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.

7.

For the purposes of point 6:

Annex IV to Directive 2006/48/EC shall be considered to be amended to include point 8 of Section C of Annex I to
Directive 2004/39/EC;

Annex III to Directive 2006/48/EC shall be considered to be amended to include, after the footnotes of Table 1, the
following text:

‘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 it would be a

qualifying item for the purposes of Annex I: 5 %; and

— where the reference obligation is one that if it gave rise to a direct exposure of the institution it 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 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.

For the purposes of point 6 , in calculating risk‑weighted exposure amounts institutions shall not be permitted to use
the Financial Collateral Simple Method, set out in points 24 to 29, Part 3 , Annex VIII to Directive 2006/48/EC, for the
recognition of the effects of financial collateral.

For the purposes of point 6 , in the case of repurchase transactions and securities or commodities lending or
borrowing transactions booked in the trading book, 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

8.

9.

30.6.2006

EN

Official Journal of the European Union

L 177/233

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 which are not eligible under Annex VIII of Directive 2006/48/EC are lent, sold or provided, or
borrowed, purchased or received by way of collateral or otherwise under such a transaction, and the institution is
using the Supervisory volatility adjustments approach under Part 3 of Annex VIII to that Directive, such instruments
and commodities shall be treated in the same way as non‑main index equities listed on a recognised exchange.

Where institutions are using the Own Estimates of Volatility adjustments approach under Part 3 of Annex VIII to
Directive 2006/48/EC in respect of financial instruments or commodities which are not eligible under Annex VIII of
that Directive, volatility adjustments must be calculated for each individual item. Where institutions are using the
Internal Models Approach defined in Part 3 of Annex VIII to Directive 2006/48/EC, they may also apply this approach
in the trading book.

10.

For the purposes of point 6,
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; and

(b)

any items borrowed, purchased or received under the transactions may be recognised as eligible financial
collateral under Title V, Chapter 2, Section 3, Subsection 3 of Directive 2006/48/EC without the application of
point 9 of this Annex.

11. Where a credit derivative included in the trading book forms part of an internal hedge and the credit protection is
recognised under Directive 2006/48/EC, there shall be deemed not to be counterparty risk arising from the position in
the credit derivative.

12.

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

L 177/234

EN

Official Journal of the European Union

30.6.2006

ANNEX III

CALCULATING CAPITAL REQUIREMENTS FOR FOREIGN-EXCHANGE RISK

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 in point 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.

2.

A two‑stage calculation shall be used for capital requirements for foreign‑exchange risk.

2.1.

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 income/expenses not yet entered
in accounting records but already fully hedged by forward foreign‑exchange 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; and

(f)

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

Any 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.

For the purposes of the calculation referred to in the first 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.

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.

2.2. 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 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.

30.6.2006

EN

Official Journal of the European Union

L 177/235

3.

By derogation from points 1 and 2 and pending further coordination, the competent authorities may prescribe or
allow institutions to use the following procedures for the purposes of this Annex.

3.1. The competent authorities may allow institutions to provide lower capital requirements against positions in closely
correlated currencies than those which would result from applying points 1 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.

3.2. The 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 methods described in points 1, 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.

By derogation from the first 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 economic and monetary union to be
1,6 %, multiplied by the value of such matched positions.

4.

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

L 177/236

EN

Official Journal of the European Union

30.6.2006

ANNEX IV

CALCULATING CAPITAL REQUIREMENTS FOR COMMODITIES RISK

1.

2.

3.

4.

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.

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

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

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 point 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 points 8, 9 and
10, as positions in the underlying commodity.

7.

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

(a)

(b)

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

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

Particular instruments

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 V.

The competent authorities may also allow the capital requirement for an OTC commodity derivatives contract of the
type referred to in this point 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 V.

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 points 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 Table 1 to point 13. 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.

30.6.2006

EN

Official Journal of the European Union

L 177/237

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, 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.

Other risks, apart from the delta risk, associated with commodity options 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 V.

The 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 V.

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.

11. Warrants relating to commodities shall be treated in the same way as commodity options referred to in point 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.

(a) Maturity ladder approach

13.

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

Maturity band

(1)

0 ≤ 1 month

> 1 ≤ 3 months

> 3 ≤ 6 months

> 6 ≤ 12 months

> 1 ≤ 2 years

> 2 ≤ 3 years

> 3 years

Table 1

Spread rate (in %)

(2)

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 point 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.

L 177/238

EN

Official Journal of the European Union

30.6.2006

15.

16.

The institution shall then calculate 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.

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:

(a)

(b)

the sum of the matched long and short positions, multiplied by the appropriate spread rate as indicated in the
second column of Table 1 to point 13 for each maturity band and by the spot price for the commodity;

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; and

(c)

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 point 17.

(b)

Simplified approach

19.

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

(a)

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

(b)

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 point 19.

(c)

Extended Maturity ladder approach

21. Competent authorities may authorise institutions to use the minimum spread, carry and outright rates set out in the
following table (Table 2) instead of those indicated in points 13, 14, 17 and 18 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.

Table 2

Precious metals
(except gold)

Base metals

Agricultural
products (softs)

Other, including
energy products

Spread rate ( %)

Carry rate ( %)

Outright rate ( %)

1,0

0,3

8

1,2

0,5

10

1,5

0,6

12

1,5

0,6

15

30.6.2006

EN

Official Journal of the European Union

L 177/239

ANNEX V

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 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:

(a)

(b)

(c)

(d)

(e)

the internal risk‑measurement model
institution and serves as the basis for reporting risk exposures to senior management of the institution;

is closely integrated into the daily risk‑management process of the

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. The unit shall also conduct the
initial and on-going validation of the internal model;

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;

the institution has sufficient numbers of staff skilled in the use of sophisticated models in the trading,
risk‑control, audit and back‑office areas;

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;

(f)

the institution's model has a proven track record of reasonable accuracy in measuring risks;

(g)

the institution frequently conducts 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. This process shall particularly
address illiquidity of markets in stressed market conditions, concentration risk, one way markets, event and
jump‑to‑default risks, non-linearity of products, deep out‑of‑the‑money positions, positions subject to the
gapping of prices and other risks that may not be captured appropriately in the internal models. The shocks
applied shall reflect the nature of the portfolios and the time it could take to hedge out or manage risks under
severe market conditions; and

(h)

the institution must conduct, as part of its regular internal auditing process, an independent review of its
risk‑measurement system.

The review referred to in point (h) of the first paragraph 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 shall consider the following:

(a)

(b)

(c)

(d)

the adequacy of the documentation of the risk‑management system and process and the organisation of the
risk‑control unit;

the integration of market risk measures into daily risk management and the integrity of the management
information system;

the process the institution employs for approving risk‑pricing models and valuation systems that are used by
front and back‑office personnel;

the scope of market risks captured by the risk‑measurement model and the validation of any significant changes
in the risk‑measurement process;

L 177/240

EN

Official Journal of the European Union

30.6.2006

(e)

(f)

(g)

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;

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

the verification process the institution uses to evaluate back‑testing that is conducted to assess the models'
accuracy.

3.

Institutions shall have processes in place to ensure that their internal models have been adequately validated by
suitably qualified parties independent of the development process to ensure that they are conceptually sound and
adequately capture all material risks. The validation shall be conducted when the internal model is initially developed
and when any significant changes are made to the internal model. The validation shall also be conducted on a periodic
basis but especially where there have been any significant structural changes in the market or changes to the
composition of the portfolio which might lead to the internal model no longer being adequate. As techniques and best
practices evolve, institutions shall avail themselves of these advances. Internal model validation shall not be limited to
back-testing, but shall, at a minimum, also include the following:

(a)

(b)

(c)

tests to demonstrate that any assumptions made within the internal model are appropriate and do not
underestimate or overestimate the risk;

in addition to the regulatory back-testing programmes, institutions shall carry out their own internal model
validation tests in relation to the risks and structures of their portfolios; and

the use of hypothetical portfolios to ensure that the internal model is able to account for particular structural
features that may arise, for example material basis risks and concentration risk.

4.

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 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. Competent authorities may require institutions to perform back-testing
on either hypothetical (using changes in portfolio value that would occur were end-of-day positions to remain
unchanged), or actual trading (excluding fees, commissions, and net interest income) outcomes, or both.

5.

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 internal model meets the following conditions:

(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;

(e)

it captures name-related basis risk, that is institutions shall demonstrate that the internal model is sensitive to
material idiosyncratic differences between similar but not identical positions; and

(f)

it captures event risk.

30.6.2006

EN

Official Journal of the European Union

L 177/241

The institution shall also meet the following conditions:

— where an institution is subject to event risk that is not reflected in its value‑at‑risk measure, because it is beyond
the 10-day holding period and 99 percent confidence interval (low probability and high severity events), the
institution shall ensure that the impact of such events is factored in to its internal capital assessment; and

— the institution's internal model shall conservatively assess the risk arising from less liquid positions and
positions with limited price transparency under realistic market scenarios. In addition, the internal model shall
meet minimum data standards. Proxies shall be appropriately conservative and may be used only where
available data is insufficient or is not reflective of the true volatility of a position or portfolio.

Further, as techniques and best practices evolve, institutions shall avail themselves of these advances.

In addition, the institution shall have an approach in place to capture, in the calculation of its capital requirements, the
default risk of its trading book positions that is incremental to the default risk captured by the value-at-risk measure as
specified in the previous requirements of this point. To avoid double counting, an institution may, when calculating its
incremental default risk charge, take into account the extent to which default risk has already been incorporated into
the value‑at‑risk measure, especially for risk positions that could and would be closed within 10 days in the event of
adverse market conditions or other indications of deterioration in the credit environment. Where an institution
captures its incremental default risk through a surcharge, it shall have in place methodologies for validating the
measure.

The institution shall demonstrate that its approach meets soundness standards comparable to the approach set out in
Articles 84 to 89 of Directive 2006/48/EC, under the assumption of a constant level of risk, and adjusted where
appropriate to reflect the impact of liquidity, concentrations, hedging and optionality.

An institution that does not capture the incremental default risk through an internally developed approach shall
calculate the surcharge through an approach consistent with the either the approach set out in Articles 78 to 83 of
Directive 2006/48/EC or the approach set out in Articles 84 to 89 of that Directive.

With respect to cash or synthetic securitisation exposures that would be subject to a deduction treatment under the
treatment set out in Article 66(2) of Directive 2006/48/EC, or risk-weighted at 1,250 % as set out in Part 4 of
Annex IX to that Directive, these positions shall be subject to a capital charge that is no less than set forth under that
treatment. Institutions that are dealers in these exposures may apply a different treatment where they can demonstrate
to their competent authorities, in addition to trading intent, that a liquid two-way market exists for the securitisation
exposures or, in the case of synthetic securitisations that rely solely on credit derivatives, for the securitisation
exposures themselves or all their constituent risk components. For the purposes of this section a two-way market is
deemed to exist where there are independent good faith offers to buy and sell so that a price reasonably related to the
last sales price or current good faith competitive bid and offer quotations can be determined within one day and
settled at such a price within a relatively short time conforming to trade custom. For an institution to apply a different
treatment, it shall have sufficient market data to ensure that it fully captures the concentrated default risk of these
exposures in its internal approach for measuring the incremental default risk in accordance with the standards set out
above.

6.

7.

8.

Institutions using internal models which are not recognised in accordance with point 4 shall be subject to a separate
capital charge for specific risk as calculated according to Annex I.

For the purposes of point 9(b), the results of the institution's own calculation shall be scaled up by a multiplication
factor of at least 3.

The multiplication factor shall be increased by a plus‑factor of between 0 and 1 in accordance with Table 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.

L 177/242

EN

Official Journal of the European Union

30.6.2006

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

The competent authorities may, in individual cases and owing to an exceptional situation, waive the requirement to
increase the multiplication factor by the ‘plus‑factor’ in accordance with Table 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.

9.

Each institution must meet a capital requirement expressed as the higher of:

(a)

(b)

its previous day's value‑at‑risk measure according to the parameters specified in this Annex plus, where
appropriate, the incremental default risk charge required under point 5; or

an average of the daily value‑at‑risk measures on each of the preceding 60 business days, multiplied by the
factor mentioned in point 7, adjusted by the factor referred to in point 8 plus, where appropriate, the
incremental default risk charge required under point 5.

10.

The calculation of the value‑at‑risk measure shall be subject to the following minimum standards:

(a)

at least daily calculation of the value‑at‑risk measure;

(b)

a 99th percentile, one‑tailed confidence interval;

(c)

a 10‑day equivalent holding period;

(d)

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; and

(e)

three‑monthly data set updates.

11.

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.

12.

The risk‑measurement model shall capture a sufficient number of risk factors, depending on the level of activity of the
institution in the respective markets and in particular the following.

30.6.2006

EN

Official Journal of the European Union

L 177/243

Interest rate risk

The 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

The risk‑measurement system shall incorporate risk factors corresponding to gold and to the individual foreign
currencies in which the institution's positions are denominated.

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 of the CIU, where the correctness of this report is adequately ensured.
If an institution is not aware of the foreign exchange positions of a CIU, this position should be carved out and treated
in accordance with the fourth paragraph of point 2.1 of Annex III.

Equity risk

The risk‑measurement system shall use a separate risk factor at least for each of the equity markets in which the
institution holds significant positions.

Commodity risk

The 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.

13.

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.

L 177/244

EN

Official Journal of the European Union

30.6.2006

ANNEX VI

CALCULATING CAPITAL REQUIREMENTS FOR LARGE EXPOSURES

1.

The excess referred to in Article 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 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 point 1, on these components.

3.

As from 10 days after the excess has occurred, the components of the excess, selected in accordance with point 1, shall
be allocated to the appropriate line in column 1 of Table 1 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 1.

Table 1

Excess over the limits

(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 %

Factors

200 %

300 %

400 %

500 %

600 %

900 %

30.6.2006

EN

Official Journal of the European Union

L 177/245

ANNEX VII

TRADING

PART A

Trading Intent

1.

Positions/portfolios held with trading intent shall comply with the following requirements:

(a)

(b)

there must be a clearly documented trading strategy for the position/instrument or portfolios, approved by
senior management, which shall include expected holding horizon;

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
approved strategy;

(iv)

positions are reported to senior management as an integral part of the institution's risk management
process; and

(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, the
quality and availability of market inputs to the valuation process, level of market turnover, sizes of
positions traded in the market; and

(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 stale 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 various areas involved in the determination of the valuation, sources of market information and review of
their appropriateness, frequency of independent valuation, timing of closing prices, procedures for adjusting
valuations, month end and ad‑hoc verification procedures; and

(b)

reporting lines for the department accountable for the valuation process that are clear and independent of the
front office.

The reporting line shall ultimately be to a main board executive director.

L 177/246

EN

Official Journal of the European Union

30.6.2006

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
is defined as any valuation which has to be benchmarked,

trading book capital treatment. Marking to model
extrapolated or otherwise calculated from a market input.

6.

The following requirements must be complied with when marking to model:

(a)

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;

(b) 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 frequent
basis;

(c)

where available, valuation methodologies which are accepted market practice for particular
instruments or commodities shall be used;

financial

(d) 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;

(e)

(f)

(g)

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; and

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 profit and loss versus risk factors, comparison of actual
close out values to model outputs).

For the purposes of point (d), the model shall be developed or approved independently of the front office and shall be
independently tested, including validation of the mathematics, assumptions and 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

8.

Institutions shall establish and maintain procedures for considering valuation adjustments/reserves.

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.

30.6.2006

EN

Official Journal of the European Union

L 177/247

Standards for less liquid positions

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
positions. 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, market concentrations, the aging of positions, the extent to which
valuation relies on marking-to-model, and the impact of other model risks.

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 positions 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 2006/48/EC

14. Other profits/losses originating from valuation adjustments/reserves shall be included in the calculation of ‘net trading
book profits’ mentioned in point (b) of Article 13(2) and be added to/deducted from the additional own funds eligible
to cover market risk requirements according to such provisions.

15. Valuation adjustments/reserves which exceed those made under the accounting framework to which the institution is
subject shall be treated in accordance with point 13 if they give rise to material losses, or point 14 otherwise.

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)

internal hedges shall not be primarily intended to avoid or reduce capital requirements;

(b)

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; and

(e)

internal transactions shall be carefully monitored.

Monitoring must be ensured by adequate procedures.

2.

3.

The treatment referred to in point 1 applies without prejudice to the capital requirements applicable to the
‘non‑trading book leg’ of the internal hedge.

Notwithstanding points 1 and 2, when an institution hedges a non‑trading book credit risk exposure using a credit
derivative booked in its trading book (using an internal hedge), the non‑trading book exposure is not deemed to be
hedged for the purposes of calculating capital requirements unless the institution purchases from an eligible third
party protection provider a credit derivative meeting the requirements set out in point 19 of Part 2 of Annex VIII to
Directive 2006/48/EC with regard to the non‑trading book exposure. Where such third party protection is purchased
and is recognised as a hedge of a non-trading book exposure for the purposes of calculating capital requirements,
neither the internal nor external credit derivative hedge shall be included in the trading book for the purposes of
calculating capital requirements.

L 177/248

EN

Official Journal of the European Union

30.6.2006

PART D

Inclusion In The Trading Book

1.

2.

3.

4.

Institutions shall have clearly defined policies and procedures for determining which position to include in the trading
book for the purposes of calculating their capital requirements, consistent with the criteria set out in Article 11 and
taking into account the institution's risk management capabilities and practices. Compliance with these policies and
procedures shall be fully documented and subject to periodic internal audit.

Institutions shall have clearly defined policies and procedures for overall management of the trading book. At a
minimum these policies and procedures shall address:

(a)

the activities the institution considers to be trading and as constituting part of the trading book for capital
requirement purposes;

(b)

the extent to which a position can be marked‑to‑market daily by reference to an active, liquid two-way market;

(c)

for positions that are marked‑to‑model, the extent to which the institution can:

(i)

identify all material risks of the position;

(ii)

hedge all material risks of the position with instruments for which an active, liquid two‑way market exists;
and

(iii)

derive reliable estimates for the key assumptions and parameters used in the model;

(d)

(e)

(f)

(g)

the extent to which the institution can, and is required to, generate valuations for the position that can be
validated externally in a consistent manner;

the extent to which legal restrictions or other operational requirements would impede the institution's ability to
effect a liquidation or hedge of the position in the short term;

the extent to which the institution can, and is required to, actively risk manage the position within its trading
operation; and

the extent to which the institution may transfer risk or positions between the non‑trading and trading books
and the criteria for such transfers.

Competent authorities may allow institutions to treat positions that are holdings in the trading book as set out in
Article 57(l), (m) and (n) of Directive 2006/48/EC as equity or debt instruments, as appropriate, where an institution
demonstrates that it is an active market maker in these positions. In this case, the institution shall have adequate
systems and controls surrounding the trading of eligible own funds instruments.

Term trading-related repo‑style transactions that an institution accounts for in its non‑trading book may be included
in the trading book for capital requirement purposes so long as all such repo-style transactions are included. For this
purpose, trading‑related repo‑style transactions are defined as those that meet the requirements of Article 11(2) and of
Annex VII, Part A, and both legs are in the form of either cash or securities includable in the trading book. Regardless
of where they are booked, all repo‑style transactions are subject to a non‑trading book counterparty credit risk charge.

30.6.2006

EN

Official Journal of the European Union

L 177/249

ANNEX VIII

REPEALED DIRECTIVES

PART A

Repealed directives together with their successive amendments

(referred to in Article 52)

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 Article 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 Article 67

PART B

Deadlines for transposition

(referred to in Article 52)

Directive

Deadline for transposition

Council Directive 93/6/EEC

Directive 98/31/EC

Directive 98/33/EC

Directive 2002/87/EC

Directive 2004/39/EC

Directive 2005/1/EC

1.7.1995

21.7.2000

21.7.2000

11.8.2004

30.4.2006/31.1.2007

13.5.2005

L 177/250

EN

Official Journal of the European Union

30.6.2006

ANNEX IX

CORRELATION TABLE

This Directive

Directive
93/6/EEC

Directive
98/31/EC

Directive
98/33/EC

Directive
2002/87/EC

Directive
2004/39/EC

Article 1(1) first
sentence

Article 1(1) second
sentence and (2)

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 67(1)

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 3(1)(k) and
(l)

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) to
(21)

Article 3(1)(r)

Article 2(23)

Article 3(1)(s)

Article 2(26)

Article 3(2)

Article 2(7) and
(8)

Article 3(3)(a) and
(b)

Article 7(3)

Article 26

30.6.2006

EN

Official Journal of the European Union

L 177/251

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 3(3)(c)

Article 7(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 first
paragraph

Article 2(25)

Article 12 second
paragraph

Article 13(1) first
sub-paragraph

Annex V(1) first
sub-paragraph

Article 13(1) sec-
ond sub‑paragraph
and (2) to (5)

Annex V(1) sec-
ond sub‑para-
graph 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 18(1)(a) and
(b)

Article 4(1)(i) and
(ii)

Article 1(2)

Article 18(2) to (4) Article 4(6) to (8)

L 177/252

EN

Official Journal of the European Union

30.6.2006

This Directive

Directive
93/6/EEC

Directive
98/31/EC

Directive
98/33/EC

Directive
2002/87/EC

Directive
2004/39/EC

Article 19(1)

Article 19(2)

Article 11(2)

Article 19(3)

Article 20

Article 21

Annex IV

Article 22

Article 23 first and
second paragraph

Article 7(5) and
(6)

Article 23 third
paragraph

Article 24

Article 25

Article 26(1)

Article 7(10)

Article 1(4)

Article 26(2) to (4) Article 7(11) to

(13)

Article 27

Article 7(14) and
(15)

Article 28(1)

Article 5(1)

Article 28(2)

Article 5(2)

Article 1(3)

Article 28(3)

Article 29(1)(a) to
(c) and next two
sub-paragraphs

Annex VI(2)

Article 29(1) last
sub-paragraph

Article 29(2)

Annex VI(3)

Article 30(1) and
(2) first sub‑para-
graph

Annex VI(4) and
(5)

Article 30(2) sec-
ond sub‑paragraph

30.6.2006

EN

Official Journal of the European Union

L 177/253

This Directive

Directive
93/6/EEC

Directive
98/31/EC

Directive
98/33/EC

Directive
2002/87/EC

Directive
2004/39/EC

Article 30(3) and
(4)

Annex VI(6) and
(7)

Article 31

Annex VI(8)(1),
(2) first sentence,
(3) to (5)

Article 32

Annex VI(9) and
(10)

Article 33(1) and
(2)

Article 33(3)

Article 6(2)

Article 34

Article 35(1) to (4) Article 8(1) to (4)

Article 35(5)

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(1)(a) to
(c)

Article 10 first,
second and third
indents

Article 41(1)(d) and
(e)

Article 41(1)(f)

Article 10 fourth
indent

Article 41(1)(g)

Article 42

Article 43

Article 44

L 177/254

EN

Official Journal of the European Union

30.6.2006

This Directive

Directive
93/6/EEC

Directive
98/31/EC

Directive
98/33/EC

Directive
2002/87/EC

Directive
2004/39/EC

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 I(4) last
paragraph

Article 2(22)

Annex I(5) to (7)

Annex I(5) to (7)

Annex I(8)

Annex I(9) to (11) Annex I(8) to (10)

Annex I(12) to (14) Annex I(12) to

(14)

Annex I(15) and
(16)

Article 2(12)

Annex I(17) to (41) Annex I(15) to

(39)

Annex I(42) to (56)

Annex II(1) and (2) Annex II(1) and

(2)

Annex II(3) to (10)

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 paragraphs

Annex III(3.1)

Article 1(7) and
Annex 3(b)

30.6.2006

EN

Official Journal of the European Union

L 177/255

This Directive

Directive
93/6/EEC

Directive
98/31/EC

Directive
98/33/EC

Directive
2002/87/EC

Directive
2004/39/EC

Annex III(2.1)
fourth paragraph

Annex III(2.1) fifth
paragraph

Annex III(3.2)

Article 1(7) and
Annex 3(b)

Annex III(2.2), (3),
(3.1)

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) to (20) Annex VII(1) to

(20)

Article 1(7) and
Annex 5

Annex IV(21)

Article 11a

Article 1(6)

Annex V(1) to (12)
fourth paragraph

Annex VIII(1) to
(13)(ii)

Article 1(7) and
Annex 5

Annex V(12) fifth
paragraph

Annex V(12) sixth
paragraph to (13)

Annex VIII(13)(iii)
to (14)

Article 1(7) and
Annex 5

Annex VI(8)(2)
after the first sen-
tence

Annex VI

Annex VII

Annex VIII

Annex IX