CELEX: 51992PC0013
Language: en
Date: 1992-01-27
Title: Amended proposal for a COUNCIL DIRECTIVE ON CAPITAL ADEQUACY OF INVESTMENTS FIRMS AND CREDIT INSTITUTIONS

25 . 2 . 92                                   Official Journal of the European Communities                                       No C 50 / 5
                                                                        II
                                                               (Preparatory Acts)
                                                           COMMISSION
                Amended proposal for a Council Directive on capital adequacy of investment firms and credit
                                                                 institutions (')
                                                                 (92/ C 50 /05)
                                                         COM(92) 13 final — SYN 257
                 (Submitted by the Commission pursuant to Article 149 (3) ofthe EEC Treaty on 27 January 1992)
                                Scope                                                  and transmission of investors ' orders without
                                                                                       holding money and/or securities on their behalf;
                              Article 1
 1.      Member States shall apply the requirements of this
Directive to investment firms and credit institutions as                     (c) firms ' shall mean credit institutions and investment
defined in Article 2 .                                                            firms as defined above ;
2.      A Member State may impose additional or more
stringent requirements on the investment firms and credit                    (d) 'investment service ' shall mean a service included in
institutions that it has authorized .                                             Section A of the Annex to Directive . ./. . ./EEC (on
                                                                                  investment services) ;
                             Definitions
                                                                             (e) f' inancial   instruments ' shall mean the instruments set
                               Article 2                                          out     in  Section   B    of the   Annex   to  Directive
                                                                                  . ./. . ./EEC (on investment services);
For the purpose of this Directive :
(a) 'credit institutions ' shall mean all institutions meeting               (f) the 'trading book ' of an investment firm or a credit
       the definition in the first indent of Article 1 of                         institution shall include those positions it has taken
       Directive 77 / 780 / EEC (*)which are subject to the                       on in the course of providing investment services
       requirements           arising         from          Directive             associated with financial instruments , and entering
       89/647 / EEC (3);                                                          into the agreements defined in (n) and (o) below. It
                                                                                  shall therefore include its proprietary positions in
                                                                                  financial instruments which are held for resale, or
(b) 'investment firms ' shall mean all institutions meeting                       which are taken on by the investment firm or the
       the    definition    in    Directive      . ./. . ./EEC    (on             credit institution with the intention of benefiting in
       investment services), excluding :                                          the short term from actual or expected differences
                                                                                  between their buying and selling prices , or in order
       — credit institutions as defined above,                                    to hedge other elements of the trading book, and
                                                                                  those other exposures which are directly related to
                                                                                  both the provision of investment services in financial
       — local firms as defined below, and                                        instruments and points (n) and (o) below.
       — investment firms engaged purely in the business
           of supplying investment advice and/or the                              Inclusion or exclusion of items in, or from, the
            reception                                                             trading book shall be in accordance with objective
                                                                                  procedures including, where appropriate, accounting
(') OJ No C 152 , 21 . 6 . 1990 , p . 6 .                                         standards in the firm concerned, such procedures
C) OJ No L 322 , 17 . 12 . 1977 , p . 30 .                                        and their consistent implementation being subject to
( 3 ) OJ No L 386 , 30 . 12 . 1989 , p . 14 .                                     review by the competent authorities ;
 ---pagebreak--- No C 50 / 6                             Official Journal of the European Communities                                   25 . 2 . 92
(g) zone A, zone B, zone A credit institutions, zone B            (j) central government items shall mean long and short
    credit institutions, non-bank sector and multilateral              positions in the assets referred to in Article 6 ( 1 ) (a)
    development banks shall be defined in accordance                   and those assigned a weight of 0 % in Article 7 , of
    with Article 2 of Directive 89 /647/EEC ;                          Directive 89 /647 / EEC ;
                                                                   (k) convertible shall mean a security which, at the option
(h) over-the-counter (OTC) derivative instruments shall                of the holder, can be exchanged for another
    mean interest-rate and foreign-exchange contracts as               security, usually the equity of the issuer ;
    set out in Annex III to Directive 89/647 /EEC and
    off-balance-sheet     contracts   based     on   equities,
    provided that (i) all such contracts are not traded on
    recognized exchanges where they are subject to
    daily margin requirements, and (ii), in the case of            (1) warrant shall mean an instrument issued by the
    foreign-exchange contracts, they have an original                  issuer of the underlying security, which gives the
    maturity of more than 14 calendar days ;                           holder the right to purchase a number of shares of
                                                                       common stock, or bonds , at a stipulated price until
                                                                       the warrant's expiration date ;
(i) qualifying items shall mean long and short positions
    in assets referred to in Article 6 ( 1 ) (b) of Directive      (m) covered warrant shall mean an instrument issued by
    89/647/EEC ; it shall also mean long and short                     an entity other than the issuer of the underlying
    positions in debt securities if such securities meet the           security, which gives the holder the right to purchase
    following conditions : the securities shall both be                a number of shares of common stock, or bonds, at a
    listed on at least one stock exchange in a Member                  stipulated price until the warrant's expiration date ;
    State, or on a stock exchange in a third country
    provided that this exchange is recognized by the
    competent authorities of the relevant Member State ,
    and be considered by the firm concerned to be
    subject to a degree of default risk which is                   (n) repurchase agreement and reverse repurchase agreement
    comparable to, or lower than, that of the assets                   shall mean an agreement in which a firm transfers
    referred to in Article 6 ( 1 ) (b) of Directive                    securities subject to a commitment to repurchase
    89 / 647 / EEC .                                                   them (or substituted securities of the same
                                                                       description) at a specified price and a future date
                                                                       specified, or to be specified, by the transferor, being
                                                                       a 'repurchase agreement' for the firm selling the
                                                                       securities and a 'reverse repurchase agreement' for
                                                                       the firm buying them ;
    The manner in which the securities are assessed as
    qualifying items or not shall be subject to scrutiny by
    the competent authorities, which shall overturn the
    judgment of the firm if they consider that the
    securities concerned are subject to too high a degree          (o) securities lending agreement and securities borrowing
    of default risk to be qualifying items.                            agreement shall mean an agreement in which a firm
                                                                       lends securities and takes collateral against them
                                                                       subject to a commitment ot take them (or substituted
                                                                       securities of the same description) back and return
                                                                       the collateral at a specified price and at a future date
                                                                       specified, or to be specified, by the lender, being a
    Notwithstanding the above, the competent auth­                     securities lending agreement for the firm lending the
    orities shall have the discretion to deem securities
                                                                       securities and a securities borrowing agreement for
    which are rated by at least two credit-rating agencies             the firm borrowing them ;
    recognized by the competent authorities, or by only
    one such credit-rating agency so long as they are
    not rated below such a level by any other rating
    agency recognized by the competent authorities, at a
    level which signifies that they are subject to a degree       (p) clearing member shall mean a member of the
    of default risk, which is comparable to, or lower                  exchange and/or the clearing house, having a direct
    than , that of the assets referred to in Article 6 ( 1 ) (b)       contractual      relationship     with    the     central
    of Directive 89/ 647 /EEC and which are as liquid as               counterparty (market guarantor); non-clearing
    the qualifying items defined in the previous                       members must have their trades routed through a
    paragraph, to be qualifying items ;                                clearing member ;
 ---pagebreak--- 25 . 2 . 92                              Official Journal of the European Communities                                  No C 50 / 7
(q) local firm shall mean a firm dealing only for its own          — the reception and transmission of investors' orders
      account on a financial futures or options exchange                for financial instruments,
      or for the accounts of, or making a price to, other
      members of the same exchange. Responsibility for
      ensuring the performance of contracts entered into           — the      execution    of investors'    orders  for financial
      by such a firm must be assumed by a clearing                      instruments ,
      member of the same exchange, and such contracts
      must be taken into account in the calculation of the
      clearing member's overall capital requirements :             — the        management      of    individual   portfolios  of
                                                                         investments in financial instruments ,
(r) delta shall mean the expected change in an option
      price as a proportion of a small change in the price          provided that they do not deal in any financial
      of the instrument underlying the option ;                     instruments for their own account or underwrite issues
                                                                    of financial instruments on a firm commitment basis .
(s) for the purposes of paragraph 4 of Annex I, long
      position shall mean a position in which a firm has            2.     However, the competent authorities may require
      fixed the interest rate it will receive at some time in       that an investment firm which executes investors' orders
      the future and short position shall mean a position in        for financial instruments and holds such instruments for
      which it has fixed the interest rate it will pay at some      its own account shall have initial capital of ECU 100 000
      time in the future ;                                          rather than be subject to the level set in paragraph 4
                                                                    below, if :
(t) own Junds shall mean own funds as defined in
      Directive 89/ 299/ EEC . However, this definition             — such positions arise only as a result of its failure
      may be modified, in the circumstances described in                precisely to match investors' orders , and
      Annex V ;
                                                                    — the total market value of all such positions is subject
(u) initial capital shall mean items ( 1 ) and (2) of                    to a ceiling of 25 % of the investment firm's own
                                                                         funds , and
      paragraph 1 of Article 2 of Directive
      89 / 299/EEC 0 );
                                                                    — the investment firm meets the capital requirements set
                                                                         out in this Directive, and
(v) original own Junds shall mean items ( 1 ), (2) and (4)
      minus (9), ( 10) and ( 11 ) of paragraph 1 of Article 2
      of Directive 89 / 299 / EEC ;
                                                                    — such positions are incidental and provisional in
                                                                         nature and strictly limited to the time required to
                                                                         carry out the transaction in question.
(w) capital shall mean own funds ;
                                                                    3.     Member States may reduce this amount to ECU
(x) modified duration shall be calculated using the                 50 000 where an investment firm is not authorized to
      formula described in paragraph 25 of Annex I.                 hold clients' money or securities, nor to deal as a
                                                                    principal, nor to underwrite except where the firm is
                                                                    involved only in the distribution of issues on a best
                                                                    efforts basis .
              Initial capital for investment firms
                             Article 3                              4.     All other investment firms shall have initial capital
                                                                    of ECU 500 000 .
 1 . Investment firms which hold clients' money and/or
securities and which offer one or more of the following
services shall have initial capital of ECU 100 000 :
                                                                    5.     Each investment firm shall calculate its capital
                                                                    requirement under Annex IV hereto . Its own funds shall
                                                                    not fall below whichever is the higher of this amount and
                                                                    the level of initial capital laid down for the firm in para­
(') OJ No L 124 , 5 . 5 . 1989 , p. 16 .                            graphs 1 to 4 above.
 ---pagebreak--- No C 50 / 8                            Official Journal of the European Communities                                   25 . 2 . 92
6.     Notwithstanding paragraph 5, Member States may            (iii) the capital requirement set out in Directive
continue the authorization of investment firms in                       89/647/EEC on all of their non-trading book
existence before this Directive is implemented whose                    business, with the exception of the illiquid assets of
own funds are less than the initial capital levels specified            those investment firms applying the definition of
for them in paragraph 5 . The own funds of such                         own funds set out in paragraph 2 of Annex V ;
investment firms shall not fall below the highest
reference level calculated after the date of notification of
this Directive . The reference level shall be the average
daily level of own funds calculated over a six-month             (iv) the capital requirement set out under paragraph 2
period preceding the date of calculation. This reference                below :
level shall be calculated every six months in respect of
the corresponding preceding period.
                                                                   (v) irrespective of the requirements calculated in (i) to
7.     If control of an investment firm falling within                  (iii) above the own funds requirement for
paragraph 6 is taken, other than through inheritance, by                investment firms     shall never be    less  than     the
a natural or legal person other than the person who                     requirement set in Annex IV.
controlled it previously, the own funds of that investment
firm must attain at least the level specified in paragraph
5.
                                                                 2. The competent authorities shall require firms to
                                                                 cover the risks arising in connection with business that is
8 . Nevertheless, in certain specific circumstances and          outside the scope of both this Directive and Directive
with the consent of the competent authorities, where              89/647 /EEC by adequate own funds .
there is a merger of two or more investment firms, the
own funds of the investment firm resulting from the
merger need not attain the level specified in paragraph 5 .
However, during a period when the levels referred to in
paragraph 5 have not been attained, the own funds of              3 . The competent authorities shall require firms to set
the new investment firm may not fall below the total             up systems to monitor and control the interest-rate risk
own funds of the merged investment firms at the time of          on all of their business, these systems being subject to
the merger.                                                       approval by the competent authorities .
9.     An investment firm's own funds may not fall below
the level specified for it under paragraphs 5, 6, 7 and 8 .      4.        Firms shall be required to satisfy their competent
However, if they do, the competent authorities may,               authorities that they have adequate systems to calculate
where the circumstances justify it, allow an investment          with reasonable accuracy at any time the financial
firm a limited period in which to rectify its situation or       position of the firm.
cease its activities .
                                                                  5 . Notwithstanding paragraph 1 above, the competent
                                                                  authorities may allow firms to calculate the capital
                   Provisions against risks                      requirements for their trading book business according
                                                                 to Directive 89/647/EEC rather than according to
                           Article 4                             Annexes I, II, IV and VI below, provided that :
 1.    Firms' own funds requirements shall be the sum of :
                                                                   (i) the trading book business of these credit institutions
  (i) the capital requirement, calculated in accordance                and investment firms does not normally exceed 5 %
      with Annexes I, II and VI hereto, on their trading               of their total business ;
      book business ;
 (ii) the capital requirement, calculated in accordance           (ii) their total trading book position does not normally
      with Annex III hereto, on their overall business ;               exceed the amount of ECU 1 5 million .
 ---pagebreak--- 25 . 2 . 92                            Official Journal of the European Communities                                 No C 50 / 9
6.      In order to calculate the share of trading book          In addition they may allow foreign exchange positions
business compared to total business in paragraph 5 (i)           subject to Annex III in one firm to offset foreign
above, the competent authorities may refer either to the         exchange positions subject to Annex III, in another firm,
size of the combined on -, and off-, balance sheet               according to the rules set out in Annex III, providing
business, or to the profit and loss account, or to the own       that each of the firms concerned are obliged to meet
funds , of the firms in question, or to a combination of         their capital requirements on a solo basis .
these measures. In assessing the size of on-, and off-,
balance sheet business, fixed-rate securities shall be
valued at their market price or their principal value,
                                                                  3.      The competent authorities charged with exercising
equities at their market price and derivatives according          supervision on a consolidated basis may recognize the
to the nominal, or market, value of the instruments
                                                                 validity of the specific own funds definitions applicable
underlying them.                                                  to the firms concerned under Annex V in the calculation
                                                                  of their consolidated own funds .
7.      If a credit institution or investment firm should
happen to exceed for more than a short period of time,
either, or both, of the limits set in paragraph 5, it shall                          Reporting requirements
be required to meet the requirements set out in
paragraph 1 above, and not those of Directive                                                Article 7
89/ 647/EEC, in respect of its trading book business, and
to notify the supervisory authority.                              1 . Member States shall require that firms provide the
                                                                  competent authorities of the home Member State with all
                                                                  the information necessary to assess their compliance with
                                                                  the rules adopted in accordance with this Directive .
                                                                  Member States shall also ensure that firms' internal
         Valuation of positions for reporting purposes            control mechanisms and administrative and accounting
                                                                  procedures permit the verification of their compliance
                            Article 5                            with such rules at all times .
 1.      Firms shall mark to market their trading books on a
daily basis, unless they are subject to the provisions of
Article 4 (5).                                                    2 . Investment firms shall be obliged to 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 3 (4) above, at least once every three
2.       In the absence of readily available market prices,       months in the case of those firms covered by Article 3
e.g. in the case of dealing in new issues on the primary          ( 1 ) and 3 (2), and at least every six months in the case of
markets, the authorities may waive the requirement                those firms covered by Article 3 (3).
under paragraph 1 and require firms to use alternative
methods of valuation provided that these methods are
sufficiently prudent and have been approved by                    3 . Credit institutions shall be obliged to report in the
competent authorities .                                           manner specified by the competent authorities with the
                                                                  same frequency as they are obliged to report under
                                                                  Directive 89 /647 / EEC .
              Supervision on a consolidated basis
                                                                                      Competent authorities
                            Article 6
                                                                                             Article 8
 1.     Paragraphs 2 and 3 shall apply when one of the
firms included within the scope of the consolidation              1 . Member States shall designate the authorities which
required under Directive . ./. . ./EEC (supervision on a          are to carry out the duties provided for in this Directive .
consolidated basis) has a trading book.                          They shall inform the Commission thereof, indicating
                                                                  any division of duties.
2 . The competent authorities may permit net positions
in the trading book of one firm to offset positions in the        2. The authorities referred to in paragraph 1 must be
trading book of another firm according to the rules set           public authorities or bodies officially recognized by
out in Annexes I and VI below, providing that each of             national law or by public authorities to be part of the
the firms concerned is obliged to meet its capital                supervisory system prevailing in the relevant Member
requirements on a solo basis .                                    State .
 ---pagebreak--- No C 50 / 10                              Official Journal of the European Communities                               25 . 2 . 92
3.     The authorities concerned must be granted all the            — modification of the time period used in Annex IV,
powers necessary to carry out their tasks, in particular
that of overseeing how the trading book is constituted .
                                                                    — the alignment of terminology on and the framing of
                                                                        definitions in accordance with subsequent acts on
                                                                        firms and related matters .
4.     The competent authorities of different Member
States shall collaborate closely to carry out the duties
provided for in this Directive , particularly when                  2 . The Commission shall be assisted by a committee
investment services are provided on a services basis or by          composed of representatives of the Member States and
the establishment of branches in one or more Member                 chaired by a representative of the Commission .
States. They shall supply one another on request with all
information likely to facilitate the supervision of the
capital adequacy of firms and particularly the verification         The Commission representative shall submit to the
of their compliance with the rules laid down in this                committee a draft of the measures to be taken . The
Directive . Any exchange of information between                     committee shall deliver its opinion on the draft within a
competent authorities which is provided for in this                 time limit which the chairman may lay down according
Directive in respect of investment firms shall be subject           to the urgency of the matter. The opinion shall be
to the obligation of professional secrecy as set out in             delivered by the majority laid down in Article 148 (2) of
Article 20 of Directive . ./. . ./ EEC (on investment               the EEC Treaty in the case of decisions which the
services) and , in respect of credit institutions, subject to       Council is required to adopt on a proposal from the
the obligation set out in Article 12 of Council Directive           Commission . The votes of the representatives of the
77 / 780 / EEC , as modified by Council Directive                   Member States in the committee shall be weighted in a
89 /646 / EEC ( l ).                                                manner set out in that Article . The chairman shall not
                                                                    vote .
                            Article 9
                                                                    The Commission shall adopt the measures envisaged if
 1.    The technical modifications to be made to this               they are in accordance with the opinion of the
                                                                    committee .
Directive in the following areas shall be adopted in
accordance with the procedure laid down in paragraph
2:
                                                                    If the measures envisaged are not in accordance with the
                                                                    opinion of the committee, or if no opinion is delivered ,
                                                                    the Commission shall , without delay, submit to the
— clarification of the definitions in Article 2 in order to         Council a proposal concerning the measures to be taken .
     ensure uniform application           of    this  Directive     The Council shall act by a qualified majority.
     throughout the Community,
                                                                    If the Council does not act within three months of the
— modification of the definitions in Article 2 to take              referral to it, the proposed measure shall be adopted by
     account of developments on financial markets ,                 the Commission .
— alteration of the amounts of initial capital prescribed                               Transitional provisions
     in Article 3 to take account of developments in the
    economic and monetary field ,
                                                                                              Article 10
                                                                    Member States may authorize investment firms subject to
— adaptation of the ceilings referred to in Article 4 (5),          Directive . ./. . ./ EEC (on investment services) whose
                                                                    own funds are less than the levels specified for them in
                                                                    paragraph 5 of Article 3 above . However, the own funds
— adaptation of the procedures for calculating net open             of such investment firms must thereafter meet the
    positions in Annexes I and III,                                 conditions laid down in paragraphs 6 to 9 of Article 3 .
— adaptation of the weightings in Annexes I, II and III ,                                  Final provisions
    in order to take account of developments on financial
    markets ,
                                                                                              Article 11
                                                                    1 . Member States shall bring into force the laws ,
                                                                    regulations and administrative provisions necessary to
(') OJ No L 386 , 30 . 12 . 1989 , p. 1 .                           comply with this Directive by [1 January 1993] at the
 ---pagebreak--- 25 . 2 . 92                                  Official Journal of the European Communities                                      No C 50 / 11
latest. The provisions adopted shall make express                           law which they adopt in the field governed by this
reference to this Directive. They shall forthwith inform                    Directive .
the Commission thereof.
                                                                                                       Article 12
2.      Member      States      shall    communicate      to     the
Commission the texts of the main provisions of national                     This Directive is addressed to the Member States .
                                                                   ANNEX I
                                                              POSITION RISK
                                                             INTRODUCTION
             Netting
               1 . The excess of the firm's long (short) positions over its short (long) positions in the same equity, debt
                    and convertible issues and identical financial futures, options and warrants contracts shall be its net
                    position in each of the different instruments. In calculating the net position the competent authorities
                   shall allow positions in derivative instruments to be treated, in the manner specified in paragraphs 4 to
                   6 below, as positions in the underlying (or notional) security/securities.
               2 . No netting shall be allowed between a convertible and an offsetting position in the instrument
                    underlying it, unless the competent authorities adopt an approach under which the likelihood of a
                   particular convertible being converted is taken into account or have a capital requirement to cover any
                   potential loss which could be incurred on conversion.
               3. All net positions, irrespective of their sign, must be converted on a daily basis into the firm's reporting
                   currency at the prevailing spot exchange rate before their aggregation.
             Particular instruments
              4 . Interest-rate futures, forward-rate agreements (FRAs) and forward commitments to buy or sell
                   financial 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 the holding of an asset with a maturity date equal to that of the (notional)
                   instrument 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 asset holding shall be included in
                   the central government column of Table 1 in paragraph 13 in order to calculate the capital required
                   against specific risk for these two instruments. The competent authorities may allow the capital
                   requirement for an exchange-traded future to be equal to the margin held at the exchange if they are
                   fully satisfied that it provides an accurate measure of the risk associated with the future and that the
                   method used to calculate the margin is equivalent to the method of calculation set out in the rest of
                   this Annex for such futures .
              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, or that calculated by the
                   competent authorities, or where this is not available or for OTC options, that calculated by the firm
                   itself, subject to the competent authorities being satisfied that the model used by the firm is reasonable.
 ---pagebreak--- No C 50 / 12                                Official Journal of the European Communities                                     25 . 2 . 92
                   However the competent authorities may also prescribe that firms calculate their deltas using a metho­
                   dology specified by the competent authorities. The competent authorities shall require that the other
                   risks, apart from the delta risk, associated with options are safeguarded against.
              6 . The competent authorities may allow the requirement against a position in an exchange-traded option
                   to be equal to the margin required by the exchange if they are fully satisfied that it provides an
                   accurate measure of the risk associated with the option and that the method used to calculate the
                   margin is equivalent to the method of calculation set out in the rest of this Annex for such options . 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.
              7 . Warrants, and covered warrants, shall be treated in the same way that options are treated in para­
                  graphs 5 and 6 .
              8 . 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 a firm 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.
              9. However, firms which mark to market and manage the interest rate risk on the derivative instruments
                  covered in paragraphs 4 to 8 on a discounted cash flow basis may use sensitivity models to calculate
                  the positions referred to above. Both the model and its use by the firm 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 by 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 below. The positions shall be included in the calculation
                  of capital requirements according to the provisions laid down in paragraphs 14 to 29 below.
             10 . The seller of securities in a repurchase agreement, and the lender of securities in a stock lending
                  agreement, shall include these securities in the calculation of its capital requirement under this Annex.
             Specific and general risks
             11 . The position risk on a traded debt instrument or equity (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 (in the case of a cash 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) to a change in
                  the level of interest rates or (in the case of an equity or equity derivate) to a broad equity market
                  movement unrelated to any specific attributes of individual securities .
 ---pagebreak--- 25 . 2 . 92                                 Official Journal of the European Communities                                       No C 50 / 13
                                                     TRADED DEBT INSTRUMENTS
             12 . The firm shall classify its net positions 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.
             Specific risk
             13 . The firm shall assign its net positions, as calculated in paragraph 1 , to the appropriate categories in the
                   first row of Table 1 on the basis of their residual maturities and then multiply them by the weights
                   shown in the second row. It shall sum its weighted positions (regardless of whether they are long or
                   short) in order to calculate its capital requirement against specific risk.
                                                                     TABLE 1
                      Central government                          Qualifying items                            Other items
                             items
                                             up to 6 months      over 6 and up to    over 24 months
                                                                    24 months
                           0,00 %                0,25 %               1,00 %              1,60 %                8,00 %
                   Notwithstanding the above, Member States may set a specific risk requirement for any bonds assigned
                   a weight of 10 % in Directive 89/647 /EEC by virtue of Article 11 (2) of that Directive, equal to half
                   the specific risk requirement for a qualifying item with the same residual maturity as such a bond.
            General risk
            (a) Maturity-based
            14. 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 paragraph 15) 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 held alongside an opposite weighted position falls
                  within the same maturity band. A reduction in the requirement shall also be allowed when the opposite
                  weighted positions fall into different maturity bands, with the size of this reduction depending both on
                  whether the two positions fall into the same zone, or not, and on the particular zones they fall into.
                  There are three zones (groups of maturity bands) altogether.
            15 . The firm shall assign its net positions to the appropriate maturity bands in the second or third column,
                  as appropriate , in Table 2 below. 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 either the second or third columns in Table 2 . It shall then multiply each of them by
                 the weight presented for the maturity band in question in the fourth column of Table 2 .
            16. 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.
 ---pagebreak--- No C 50 / 14                              Official Journal of the European Communities                                   25 . 2 . 92
             17 . The firm 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                                 Assumed interest
                        Zone                                                              Weight         rate exchange
                                   Coupon of 3 % or more          Coupon of less than 3 %   ( %)
                                                                                                              (°/o)
                         (1)               ( 2)                            ( 3)              ( 4)              (5)
                          1             0— 1       month                  0— 1   month      0,00
                                        1— 3       months                 1— 3   months     0,20              1,00
                                        3— 6       months                 3— 6   months      0,40             1,00
                                        6— 12      months                 6— 12  months     0,70              1,00
                          2              1 — 2 years                   1,0— 1,9 years        1,25             0,90
                                         2— 3 years                    1,9— 2,8 years        1,75             0,80
                                         3— 4 years                    2,8— 3,6 years        2,25             0,70
                          3              4— 5      years               3.6— 4,3   years     2,75              0,75
                                         5— 7      years               4,3— 5,7   years     3,25              0,70
                                         7— 10     years               5.7— 7,3   years     3,75              0,65
                                        10— 15     years               7,3— 9,3   years     4,50              0,60
                                        15—20      years               9,3— 10,6  years     5,25              0,60
                                                20 years             10,6— 12,0   years     6,00              0,60
                                                                     12,0—20,0    years     8,40              0,60
                                                                              20  years    13,0               0,60
             18 . The amount of the unmatched weighted long (short) position in zone 1 which is matched by the
                  unmatched weighted short (long) position in zone 2 shall then be computed . This shall be referred to
                  in paragraph 22 as the matched weighted position between zones 1 and 2 . The same calculation shall
                  then be undertaken with regard to that part of the unmatched weighted position in zone 2 which is left
                  over and the unmatched weighted position in zone 3 in order to calculate the matched weighted
                  position between zones 2 and 3 .
             19. The firm may, if it wishes, reverse the order in paragraph 18 so as to calculate the matched weighted
                  position between zones 2 and 3 before working out that between zones 1 and 2.
             20 . The remainder of the unmatched weighted position in zone 1 shall then be matched with what remains
                  of that for zone 3 after that zone's matching with zone 2 , in order to derive the matched weighted
                  position between zones 1 and 3 .
             21 . Residual positions, following the three separate matching calculations in paragraphs 18 to 20 above,
                  shall be summed .
             22 . The firm's capital requirement shall be calculated as the sum of :
                  (a) 10 % of the sum of the matched weighted positions in all maturity bands ;
 ---pagebreak--- 25 . 2 . 92                              Official Journal of the European Communities                                    No C 50 / 15
                 (b) 30 % of the matched weighted position in zone 1 ;
                 (c) 20 °/o of the matched weighted position in zone 2 ;
                 (d) 20 % of the matched weighted position in zone 3 ;
                 (e) 30 % of the matched weighted position between zones 1 and 2 and between zones 2 and 3 (see
                      paragraph 19);
                 (f) 100 % of the matched weighted position between zones 1 and 3 ;
                 (g) 100 % of the residual unmatched weighted positions.
            (b) Duration-based
            23 . The competent authorities in a Member State may allow firms, in general or on an individual basis, to
                 use a system for calculating the capital requirement for the general risk on traded debt instruments
                 which reflects duration, instead of the system set out in paragraphs 14 to 22 above.
            24 . Under such a system the firm shall take the market value of each fixed-rate debt instrument and thence
                 calculate its yield to maturity, which is the implied discount rate for that instrument. In the case of
                 floating-rate instruments the firm 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.
            25 . The firm shall then calculate the modified duration of each debt instrument on the basis of the
                 following formula :
                                         duration ( DV
                 modified duration =
                                            (1 + r)
                 where
                                       r   = yield to maturity
                                       Ct = cash payment in time t
                                       m = total maturity (see paragraph 24).
 ---pagebreak--- No C 50 / 16                                 Official Journal of the European Communities                                    25 . 2 . 92
              26 . It shall then allocate each of them to its appropriate zone in Table 3 below. It shall
                    do so on the basis of the modified duration of each instrument.
                                                              TABLE 3
                                                     Modified duration                           Assumed interest
                           Zone
                                                         (in years)                                (% change)
                            (D                               ( 2)                                      (3)
                              1                             0 < 1,0                                   1,0
                             2                            1,0 < 3,6                                   0,85
                             3                            3,6                                         0,7
             27 . The firm 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 third column of Table 3).
             28 . The firm shall work out its duration-weighted long, and its duration-weighted short, positions within
                   each zone . The amount of the former which are matched by the latter within each zone shall be the
                   matched duration-weighted position for that zone. The firm shall then calculate the unmatched
                   duration-weighted positions for each zone. It shall then follow the procedures laid down for
                   unmatched weighted positions in paragraphs 18 to 21 above .
             29 . The firm's capital requirement shall then be calculated as the sum of:
                   (a) 10 % of the matched duration-weighted position for each zone ;
                   (b) 30 °/o of the matched duration-weighted position between zones 1 and 2 and between zones 2 and
                        3;
                   (c) 100 % of the matched duration-weighted position between zones 1 and 3 ;
                   (d) 100 % of the residual unmatched duration-weighted positions .
                                                                    EQUITIES
             30 . The firm shall sum all its net — according to paragraph 1 — long positions and all its net short
                   positions . The sum of the two figures shall be its overall gross positions . The excess of one over the
                   other shall be its overall net position.
            Specific risk
            31 . It shall multiply its overall gross position by 4 % in order to calculate its capital requirement against
                  specific risk.
            32 . Notwithstanding paragraph 31 , the competent authorities may allow the capital requirement against
                  specific risk to be reduced to a minimum of 2 % , and not 4 % , of the overall gross position for those
                  portfolios of equities that a firm holds which meet the following conditions . First, the equities therein
                  shall not be those of issuers which have issued any traded debt instruments that currently attract an
                  8 % requirement under Table 1 above. Second, they must be adjudged highly liquid by the competent
                  authorities concerned . Third, no individual position within such a portfolio shall comprise more than
                  5 % of the value of the overall gross position of the portfolio.
 ---pagebreak--- 25 . 2 . 92                                Official Journal of the European Communities                                          No C 50 / 17
            General risk
            33 . Its capital requirement against general risk shall be its overall net position multiplied by 8 % .
            Stock-index futures
            34 . Stock-index futures, and the delta-weighted equivalents of options in stock index futures and stock
                 indices (see paragraph 5 above) shall be broken down into positions in each of their constituent
                 equities . These positions shall be treated as underlying positions in the equities in question ; therefore,
                 subject to the approval of the competent authorities, they shall be netted against opposite positions in
                 the underlying equities themselves .
            35 . The competent authorities shall ensure that any firm 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 arising from the value of the future not moving fully
                 in line with that of its constituent equities ; they shall also do this when a firm holds opposite positions
                 in stock-index futures which are not identical in respect of either their maturity or their composition,
                 or both .
            36. Notwithstanding paragraphs 34 and 35, stock-index futures which are exchange-traded and represent
                 — in the opinion of the competent authorities — broadly diversified indices shall attract a capital
                 requirement against general risk of 8 °/o , but no capital requirement against specific risk. Such
                 stock-index futures shall be included in the calculation of the overall net position in paragraph 30, but
                 disregarded in the calculation of the overall gross position in the same paragraph.
            Underwriting
            37. In the case of the underwriting of debt and equity instruments, the competent authorities may allow a
                 firm to use the following procedure in calculating its capital requirements . First, it shall calculate its net
                 positions by deducting the underwriting positions which are subscribed or reunderwritten, by third
                 parties ; second, it shall reduce its net positions by the following reduction factors :
                 working day 1 :                                90 % ,
                 working days 2 to 3 :                          75 % ,
                 working day 4 :                                50% ,
                 working day 5 :                                25 % ,
                 after working day 5 :                           0 %.
                 Working day 1 shall be the working day following that on which the firm becomes unconditionally
                 committed to accepting a known quantity of securities at an agreed price under the terms of the
                 underwriting agreement. Third, it shall calculate its capital requirement using the reduced underwriting
                 positions .
 ---pagebreak--- No C 50 / 18                                Official Journal of the European Communities                                       25 . 2 . 92
                                                                  ANNEX II
                                              SETTLEMENT AND COUNTERPARTY RISK
             1 . In the case of transactions in which bonds and equities (excluding repurchase and reverse repurchase
                 agreements) are unsettled before their due delivery dates, there shall be no capital requirement. In the
                 case of transactions in which bonds and equities (excluding repurchase and reverse repurchase
                 agreements) are unsettled after their due delivery dates, a firm must calculate the price difference to
                 which it is exposed. This is the difference between the agreed settlement price for the bond or equity in
                 question and its current market value, where the difference could involve a loss for the firm. It must
                 multiply this difference by the appropriate factor in Column A of Table 1 in order to calculate its capital
                 requirement.
             2 . Notwithstanding paragraph 1 , a firm may, at the discretion of its competent authorities, calculate its
                 capital requirements by multiplying the agreed settlement price of every transaction which is unsettled
                 between 5 and 45 working days after its due date by the appropriate factor in Column B of Table 1 . As
                 from 46 working days after the due date it shall take the requirement to be 100 % of the price
                 difference to which it is exposed, as in Column A.
                                                                   TABLE 1
                                                                              Column A                      Column B
                       Number of days after due settlement date                  (% )                          (% )
                                     5—15                                          8                           0,5
                                    16—30                                         50                           4,0
                                    31—45                                         75                           9,0
                                    46 or more                                   100                    See paragraph 2
             Free deliveries
             3 . A firm shall be required to hold capital against counterparty risk if :
                  (i) it has paid for securities before receiving them or it has delivered securities before receiving payment
                      for them ; and
                 (ii) three days or more have elapsed since it made this payment or delivery. Thereafter a credit
                      institution, or an investment firm which is not subject to the illiquid assets deduction in paragraph 2
                      of Annex V, shall be required to hold 8 % of the value of the securities or cash owed it as capital
                      where the counterparty is in the private sector but not a firm, 1,6 % of the sum where it is a firm or
                      in the public sector, and 0 % if it is the central government. An investment firm which is subject to
                      the illiquid assets deduction in paragraph 2 of Annex V shall treat the value of the securities of cash
                      owed as an illiquid asset.
             Repurchase agreements
             4. In the case of repurchase and securities lending agreements the firm shall calculate the difference
                 between the market value of the securities and the amount borrowed by the firm or the market value of
                 the collateral, where this difference is positive. In the case of reverse repurchase and securities
                 borrowing agreements the firm shall calculate the difference between the amount the firm has lent or
 ---pagebreak--- 25 . 2 . 92                                Official Journal of the European Communities                                     No C 50 / 19
                the market value of the collateral and the market value of the securities it has received, where this
                difference is positive . The competent authorities may allow margin provided by the borrower to the
                lender to be taken account of in the calculations described in the previous two sentences . Accrued
                interest shall be included in calculating the market value of amounts lent or borrowed and collateral.
            5 . The capital requirement shall be 8 % of the figure emerging from paragraph 4 where the counterparty is
                in the private sector but not a credit institution or an investment firm, 1,6 % of the sum where it is a
                credit institution, an investment firm or in the public sector and 0 % if it is the central government.
            OTC derivative instruments
            6 . In order to calculate the capital requirement on their OTC derivative instruments, the firm shall apply
                Annex II of Directive 89 /647 /EEC in the case of interest-rate, and exchange-rate, contracts ; OTC
                equity options and covered warrants shall be dealt with under Method 1 of Annex II of Directive
                89 /647 /EEC, except that the potential future credit exposure shall be calculated by multiplying the
                market value of the underlying equity by 8 % .
            Other
            7 . The requirements of Directive 89/647 / EEC shall apply to other trading book exposures including fees
                and commission income due , which are not covered in Annexes I and II above .
                                                               ANNEX III
                                                     FOREIGN-EXCHANGE RISK
            1 . If the firm 's overall net foreign-exchange position, calculated in accordance with the procedure set out
                below, exceeds 2 °/o of its total own funds, it shall multiply the excess by 8 % in order to calculate its
                own funds requirement against foreign exchange risk.
            2 . A two-stage calculation shall be used.
            3 . First, the firm's net open currency position in each currency (including the reporting currency) shall be
                calculated. This position shall consist of the addition of the following elements (positive or negative) :
                — the net spot position (i. e. all asset items less all liability items, including accrued interest, in the
                    currency in question),
                — the net forward position (i. e. all amounts to be received less all amounts to be paid under forward
                    exchange transactions, including currency futures and the principal on currency swaps not included
                    in the spot position),
                — irrevocable guarantees (and similar instruments) that are certain to be called,
                — net future income /expenses not yet accrued but already fully hedged (at the discretion of the
                    reporting institutions and with the prior consent of the competent authorities, net future income/
                    expenses not yet registered in the accounting records but already fully hedged by forward foreign­
                    exchange transactions may be included here. Such discretion must be exercised on a consistent
                    basis),
 ---pagebreak--- No C 50 / 20                                  Official Journal of the European Communities                                          25 . 2 . 92
                 — the net delta (or delta-based) equivalent of the total book of foreign currency options,
                 — the market value of other (i. e . non-foreign currency) options,
                 — any position which a firm 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 a
                       firm has which relate to items that are already deducted in the calculation of own funds.
             4. Second, net short and long positions in each currency other than the reporting currency 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 firm's overall net foreign-exchange position.
             5 . Net positions in composite currencies may be broken down into the component currencies according to
                  the quotas in force.
                                                                   ANNEX IV
                                                                OTHER RISKS
             Investment firms shall be required to hold own funds equivalent to one quarter of their previous year's
             fixed overheads . The competent authorities may adjust this requirement in the event of a material change
             to such a firm's business since the previous year. When the investment firm has not completed a year's
             business, including on the day it starts up, the requirement shall be a quarter of the fixed overheads figure
             projected in its business plan, unless an adjustment to this plan is required by the authorities.
                                                                   ANNEX V
                                                                 OWN FUNDS
             1 . The own funds of investment firms and credit institutions shall be defined in accordance with Directive
                 89 / 299 / EEC .
             2 . Notwithstanding paragraph 1 , the competent authorities may permit those firms which are obliged to
                 meet the own funds requirements that are laid down in Annexes I, II, IV and VI, or any combination of
                 them , to use an alternative definition of own funds when meeting these requirements only. No part of
                 the own funds thus provided may be used simultaneously to meet other own funds requirements. This
                 alternative definition shall include items ( 1 ) to (3) for credit institutions, and items ( 1 ) to (3) minus item
                 (4) for investment firms :
                 ( 1 ) own funds as defined in Directive 89/299/EEC excluding for investment firms only items ( 12) and
                       ( 13) of Article 2, paragraph 1 of Directive 89/299/EEC ;
                 (2) firms' net trading book profits or losses net of any foreseeable charges or dividends, less net losses
                       on their other business, provided that none of these amounts have already been included in item ( 1 )
                       above under items (2) or ( 11 ) of Article 2 , paragraph 1 of Directive 89/299/EEC ;
 ---pagebreak--- 25 . 2 . 92                                Official Journal of the European Communities                                    No C 50 / 21
                (3) subordinated loan capital and/or the items referred to in paragraph 5 below, subject to the
                      conditions set out in paragraph 3 to 7 below ;
                (4) illiquid assets as defined in paragraph 7 below.
            3 . The subordinated loan capital referred to in item (3) of paragraph 2 shall have an original 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 firm, the debt will become repayable
                before the agreed repayment date, unless the competent authorities approve the repayment. This subor­
                dinated loan capital may not be repaid if such repayment would mean that the own funds of the firm in
                question would then stand at below 100 °/o of the firm's overall requirement.
            4 . The subordinated loan capital referred to in item (3) of paragraph 2 may not exceed a maximum of
                150 % of the original own funds used to meet the requirements laid down in Annexes I, II, IV and VI
                under item ( 1 ) of paragraph 2 above.
            5 . The competent authorities may permit firms to substitute the subordinated loan capital referred to in
                paragraphs 3 and 4 with items (3), (5), (6) and (8) of paragraph 1 of Article 2 of Directive
                89 / 299 / EEC .
            6 . The competent authorities may permit the ceiling set for subordinated loan capital in paragraph 4 to
                exceed 150 % provided that the total of such subordinated loan capital and the items referred to in
                paragraph 5 does not exceed 250 °/o of the original own funds left to meet the requirements laid down
                in Annexes I, II, IV and VI under item ( 1 ) of paragraph 2.
            7 . Illiquid assets include :
                — fixed assets (except to the extent that land and buildings may be allowed to count against the loans
                     which they are securing),
                — physical stocks ,
                — holdings in, including subordinated claims on, other financial institutions which may be included in
                     the own funds of such institutions .
                     Where shares in another financial institution are held temporarily for the purposes of a financial
                     assistance operation designed to reorganize and save that institution, the competent authorities may
                     waive this provision. They may also waive it in respect of those shares which are included in the
                     investment firm's trading book,
                — deficiencies in subsidiaries ,
                — deposits made, other than those which are with a credit institution, local authority or regional
                     government and available for repayment within 90 days, and also excluding payments in connection
                    with margined futures or options contracts,
                — loans , unless they are due to be repaid within 90 days,
                — amounts specified in paragraph 3 (ii) of Annex II.
 ---pagebreak--- No C 50 / 22                                Official Journal of the European Communities                                      25 . 2 . 92
                                                               ANNEX VI
                                                          LARGE EXPOSURES
             1 . Firms shall monitor and control their large exposures in accordance with the methods laid down in
                 Directive . ./. . ./EEC (large exposures (LED)).
             2. Notwithstanding paragraph 1 above, those firms which do not calculate the capital requirements on
                 their trading books according to Directive 89 /647 /EEC, shall monitor and control the large exposures
                 according to paragraphs 3 to 5 below, rather than in the manner set out in Directive . ./. . ./EEC (LED).
             3. First they shall calculate their exposures to individual clients, or groups of connected clients, which arise
                 on their trading book. These exposures shall be calculated by summing items (i) to (iii) below :
                   (i) the market value of all net long positions in financial instruments, issued by the client, or group of
                       connected clients , in question ;
                  (ii) the exposures on their contracts with the client, or group of connected clients, in OTC derivative
                       instruments ; these exposures shall be calculated by summing the current replacement cost and
                       potential future credit exposure of interest-rate and exchange-rate contracts for firms applying
                       method I of Annex II to Directive 89/647/EEC in Annex II above, and the original exposure in
                       such contracts for firms applying method 2 instead. The exposure for equity options and covered
                       warrants shall be computed by adding their replacement cost to 8 % of the market value of the
                       equities underlying them.
                 (iii) in the case of the underwriting of a debt or an equity instrument, the firm's exposures shall be its
                       net position (which is calculated by deducting those underwriting positions which are subscribed, or
                       sub-underwritten, by third parties) reduced by the reduction factors set out in paragraph 37 of
                       Annex 1 .
             4. Notwithstanding paragraph 3 firms may exclude from their trading book exposures to clients or groups
                 of connected clients any of the exposures included in (i), (ii) and (iii) of paragraph 3 which are also
                 included in points (a) to (b) of paragraph 8 of Article 4 of Directive . ./. . ./EEC (LED).
             5 . They shall then calculate the exposures to individual clients or groups of connected clients which arise
                 on their non-trading book business . In order to do so, investment firms shall take the exposure arising
                 from assets which are deducted from their own funds by virtue of paragraph 2 of Annex V, to be zero.
                 All firms' exposures which arise outside their trading book, shall be monitored and controlled in
                 accordance with Directive (LED).
             6 . If the sum of a firm's trading book, and non-trading book, exposures to an individual client, or group
                 of connected clients, exceeds 25 % of its total own funds, the firm shall meet an additional capital
                 requirement on that part of the excess which is matched or exceeded, by the trading book exposure to
                 the client, or group of clients, in question. In the case of the debt securities, and fixed interest rate
                 derivatives, components, this addition will be equivalent to 100 % of the weighted position as calculated
                 in paragraphs 13 , and 15 or 28 , of Annex I ; in the case of the equities component it shall be 100 % of
                 the requirement calculated under paragraphs 31 to 33 of Annex I, while in all other cases it will be
                 100 % of the requirement on the position per se. These additional capital requirements will be doubled
                 when the total exposure concerned amounts to 50 % or more of the firm's capital.