CELEX: 52004PC0486(02)
Language: en
Date: 2004-07-14
Title: Proposal for a Directive of the European Parliament and of the Council on the capital adequacy of investment firms and credit institutions (recast) {SEC(2004) 921}

EN
EN    EN
 ---pagebreak---                     COMMISSION OF THE EUROPEAN COMMUNITIES
                                                     Brussels, 14.7.2004
                                                     COM(2004) 486 final
                                                     2004/0155 (COD)
                                                     2004/0159 (COD)
                                                     Volume II
                                         Proposal for
      DIRECTIVES OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL
    Re-casting Directive 2000/12/EC of the European Parliament and of the Council of 20
    March 2000 relating to the taking up and pursuit of the business of credit institutions
   and Council Directive 93/6/EEC of 15 March 1993 on the capital adequacy of investment
                                 firms and credit institutions.
                                (presented by the Commission)
                                       {SEC(2004) 921}
EN                                                                                          EN
 ---pagebreak---                                                                           93/6/EEC (adapted)
                                                                2004/0159 (COD)
                                                 Proposal for a
      COUNCIL DIRECTIVE ⌦ OF THE EUROPEAN PARLIAMENT AND OF THE
                                                 COUNCIL ⌫
                on the capital adequacy of investment firms and credit institutions
                                                     (recast)
   ⌦ THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN
   UNION, ⌫
   Having regard to the Treaty establishing the European Economic Community, and in
   particular the first and third sentences of Article 57 ⌦ 47 ⌫ (2) thereof,
   Having regard to the proposal from the Commission1,
   In cooperation with the European Parliament2,
   Having regard to the opinion of the European Economic and Social Committee3,
   ⌦ Having regard to the opinion of the Committee of the Regions4, ⌫
   ⌦ Acting in accordance with the procedure laid down in Article 251 of the Treaty5, ⌫
   Whereas:
                                                                          new
   (1)     Council Directive 93/6/EEC of 15 March 1993 on the capital adequacy of investment
           firms and credit institutions6 has been substantially amended several times. Since
           further amendments are to be made, it should be recast in the interests of clarity.
                                                                          93/6/EEC Recitals 1 (adapted)
   (2)     Whereas the main ⌦ One of the ⌫ objectives of Council Directive 93/22/EEC of 10
           May 1993 on investment services in the securities field 7 ⌦ 2004/39/EC of the
   1
           OJ C […], […], p. […].
   2
           OJ C
   3
           OJ C […], […], p. […].
   4
           OJ C […], […], p. […].
   5
           OJ C […], […], p. […].
   6
           OJ L No 141, 11.6.1993 p.1, as last amended by Directive 2004/xx/EC, OJ […]
   7
           OJ L No 141, 11.06.1993 p. 0027, as last amended by Directive [2004/…/EC (OJ ………..)]
EN                                                      2                                               EN
 ---pagebreak---        European Parliament and of the Council of 21 April 2004 on markets in financial
       instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive
       2000/12/EC of 20 March 2000 relating to the taking up and pursuit of credit
       institutions8 and repealing Council Directive 93/22/EEC9 ⌫ is to allow investment
       firms authorized by the competent authorities of their home Member States and
       supervised by the same authorities to establish branches and provide services freely in
       other Member States;. whereas tThat Directive accordingly provides for the
       coordination of the rules governing the authorizsation and pursuit of the business of
       investment firms;.
                                                                93/6/EEC Recital 2 (adapted)
   (3) Whereas tThat Directive does not, however, establish common standards for the own
       funds of investment firms nor indeed does it establish the amounts of the initial capital
       of such firms; whereas ⌦ neither does ⌫ it does not establish a common framework
       for monitoring the risks incurred by the same firms;. whereas it refers, in several of its
       provisions, to another Community initiative, the objective of which would be precisely
       to adopt coordinated measures in those fields;
                                                                93/6/EC Recital 3 (adapted)
   (4) Whereas the approach that has been adopted is ⌦ It is appropriate ⌫ to effect only
       the essential harmonization harmonisation that is necessary and sufficient to secure the
       mutual recognition of authorization authorisation and of prudential supervision
       systems; whereas the adoption of ⌦ In order to achieve mutual recognition within the
       framework of the internal financial market, ⌫ measures ⌦ should be laid down ⌫
       to coordinate the definition of the own funds of investment firms, the establishment of
       the amounts of their initial capital and the establishment of a common framework for
       monitoring the risks incurred by investment firms are essential aspects of the
       harmonization necessary for the achievement of mutual recognition within the
       framework of the internal financial market;.
                                                               new
   (5) Since the objective of the proposed action cannot be sufficiently achieved by the
       Member States and can, therefore, by reason of the scale and the effects of the action,
       be better achieved at Community level, the Community may adopt measures, in
       accordance with the principle of subsidiarity as set out in Article 5 of the Treaty. In
       accordance with the principle of proportionality, as set out in that Article, this
       Directive confines itself to the minimum required in order to achieve those objectives
       and does not go beyond what is necessary for that purpose.
                                                                93/6/EEC Recital 4
   (6) Whereas iIt is appropriate to establish different amounts of initial capital depending on
       the range of activities that investment firms are authorized to undertake;.
   8
       OJ No 126, 26.5.2000, p.1
   9
       OJ L No 145, 30.04.2004, p. 1
EN                                              3                                                 EN
 ---pagebreak---                                                                      93/6/EC Recital 5 (adapted)
   (7)      Whereas Existing investment firms should be permitted, under certain conditions, to
            continue their business even if they do not comply with the minimum amount of initial
            capital fixed for new ⌦ investment ⌫ firms;.
                                                                     93/6/EEC Recital 6 (adapted)
   (8)      Whereas theMember States may ⌦ should ⌫ also ⌦ be able to ⌫ establish rules
            stricter than those provided for in this Directive;.
                                                                     93/6/EC Recital 7 (adapted)
   Whereas this Directive forms part of the wider international effort to bring about
   approximation of the rules in force regarding the supervision of investment firms and credit
   institutions (hereinafter referred to collectively as «institutions»);
                                                                     new
   (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.
                                                                     93/6/EEC Recital 8 (adapted)
   Whereas common basic standards for the own funds of institutions are a key feature in an
   internal market in the investment services sector, since own funds serve to ensure the
   continuity of institutions and to protect investors;
                                                                     new
   (10)     Since investment firms face in respect of their trading book business the same risks as
            credit institutions, it is appropriate for the pertinent provisions of Directive
            2000/12/EC to apply equally to investment firms.
                                                                     93/6/EEC Recital 9 (adapted)
                                                                     new
   (11)     Whereas in a common financial market, institutions, whether they are             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 the competent
            authorities, in particular for the assessment of the solvency of institutions and for other
            prudential purposes. Furthermore, institutions, whether they are investment firms or
            credit institutions, in the internal market  engage in direct competition with one
            ⌦ each ⌫ another.           Therefore, in order to strengthen the Community financial
EN                                                    4                                                 EN
 ---pagebreak---           system and to prevent distortions of competition, it is appropriate to lay down common
          basic standards for own funds. 
                                                                        93/6/EC Recital 10 (adapted)
   Whereas it is therefore desirable to achieve equality in the treatment of credit institutions and
   investment firms;
                                                                       new
   (12)   For these purposes, it is appropriate for the definition of own funds laid down in
          Directive 2000/12/EC to serve as a basis and to provide for supplementary specific
          rules which take into account the different scope of market risk related capital
          requirements.
                                                                        93/6/EEC Recital 11 (adapted)
   (13)   Whereas, aAs regards credit institutions, common standards are ⌦ have ⌫ already
          ⌦ been ⌫ established for the supervision and monitoring of ⌦ different types
          of ⌫ credit risks in Council Directive 89/647/EEC of 18 December 1989 on a
          solvency ratio for credit institutions10 ⌦by Directive 2000/12/EC ⌫;.
                                                                       new
   (14)   In that respect, the provisions on minimum capital requirements should be considered
          in conjunction with other specific instruments also harmonising the fundamental
          techniques of the supervision of institutions.
                                                                        93/6/EEC Recital 12
   (15)   Whereas iIt is necessary to develop common standards for market risks incurred by
          credit institutions and provide a complementary framework for the supervision of the
          risks incurred by institutions, in particular market risks, and more especially position
          risks, counterparty/settlement risks and foreign-exchange risks;.
                                                                        93/6/EC Recital 13 (adapted)
   (16)   Whereas iIt is necessary to introduce ⌦ provide for ⌫ the concept of a «trading
          book» comprising positions in securities and other financial instruments which are
          held for trading purposes and are subject mainly to market risks and exposures relating
          to certain financial services provided to customers;.
   10
          OJ No L 386, 30. 12. 1989, p. 14. Directive as amended by Directive 92/30/EEC (OJ No L 110, 28. 4.
          1992, p. 52).
EN                                                     5                                                     EN
 ---pagebreak---                                                                 93/6/EEC Recital 14 (adapted)
   (17)  Whereas it is desirable that ⌦ With a view to reduce the administrative burden for ⌫
         institutions with negligible trading-book business, in both absolute and relative terms,
         ⌦ such institutions ⌫ should be able to apply Directive 89/647/EEC
         ⌦ [2000/12/EC] ⌫ , rather than the requirements imposed in Annexes I and II to this
         Directive;.
                                                                93/6/EC Recital 15 (adapted)
   (18)  Whereas It is important that monitoring of settlement/delivery risks should take
         account of the existence of systems offering adequate protection that reduces
         ⌦ reducing ⌫ that risk;.
                                                                93/6/EEC Recital 16 (adapted)
   (19)  Whereas, in any case, institutions must ⌦ should ⌫ comply with this Directive as
         regards the coverage of the foreign-exchange risks on their overall business; ⌦ . ⌫
         whereas lLower capital requirements should be imposed for positions in closely
         correlated currencies, whether statistically confirmed or arising out of binding
         intergovernmental agreements, with a view in particular to the creation of the
         European Monetary Union;.
                                                                93/6/EC Recital 17 (adapted)
   (20)  Whereas tThe existence, in all institutions, of internal systems for monitoring and
         controlling interest-rate risks on all of their business ⌦ of institutions ⌫ is a
         particularly important way of minimizing minimising such risks; ⌦ . ⌫ whereas,
         cConsequently, such systems must be subject to overview ⌦ should be supervised ⌫
         by the competent authorities;.
                                                                93/6/EEC Recital 18 (adapted)
   (21)  Whereas Council Directive 92/121/EEC of 21 December 1992 on the monitoring and
         control of large exposures of credit institutions11 ⌦ Since Directive [2000/12/EC] ⌫
         is not aimed at establishing ⌦ does not establish ⌫ common rules for monitoring
         ⌦ and control of ⌫ large exposures in activities which are principally subject to
         market risks ⌦ , it is therefore appropriate to provide for such rules ⌫ ; whereas that
         Directive makes reference to another Community initiative intended to adopt the
         requisite coordination of methods in that field;.
                                                                93/6/EEC Recital 19 (adapted)
   Whereas it is necessary to adopt common rules for the monitoring and control of large
   exposures incurred by investment firms;
   11
         OJ No L 29, 5. 2. 1993, p. 1.
EN                                               6                                                EN
 ---pagebreak---                                                                           new
   (22)   Operational risk is a significant risk faced by institutions requiring coverage by own
          funds. It is essential to take account of the diversity of institutions in the EU by
          providing alternative approaches.
                                                                          93/6/EEC Recitals 20 to 22
                                                                       (adapted)
   Whereas the own funds of credit institutions have already been defined in Council Directive
   89/299/EEC of 17 April 1989 on the own funds of credit institutions 12 ;
   Whereas the basis for the definition of the own funds of institutions should be that definition;
   Whereas, however, there are reasons why for the purposes of this Directive the definition of
   the own funds of institutions may differ from that in the aforementioned Directive in order to
   take account of the particular characteristics of the activities carried on by those institutions
   which mainly involve market risks;
                                                                          93/6/EEC Recital 23 (adapted)
   (23)   Whereas Council Directive 92/30/EEC of 6 April 1992 on the supervision of credit
          institutions on a consolidated basis13⌦ Directive [2000/12/EC] ⌫ states the principle
          of consolidation; ⌦ . ⌫ whereas iIt does not establish common rules for the
          consolidation of financial institutions which are involved in activities principally
          subject to market risks;. whereas that Directive makes reference to another
          Community initiative intended to adopt coordinated measures in that field;
                                                                          new
   (24)   In order to ensure adequate solvency of institutions within a group it is essential that
          the minimum capital requirements apply on the basis of the consolidated financial
          situation of the group. In order to ensure that own funds are appropriately distributed
          within the group and available to protect investments where needed, the minimum
          capital requirements should apply to individual institutions within a group, unless this
          objective can be effectively otherwise achieved.
                                                                          93/6/EEC Recital 24 (adapted)
   (25)   Whereas Directive 92/30/EEC ⌦ [2000/12/EC] ⌫ does not apply to groups which
          include one or more investment firms but no credit institutions;. whereas it was,
          however, felt desirable to provide aA common framework for the introduction of the
          supervision of investment firms on a consolidated basis ⌦ should therefore be
          provided for ⌫ ;.
   12
          OJ No L 124, 5. 5. 1989, p. 16. Directive as last amended by Directive 92/30/EEC (OJ No L 110, 24. 9.
          1992, p. 52).
   13
          OJ No L 110, 28. 4. 1992, p. 52.
EN                                                       7                                                      EN
 ---pagebreak---                                                                    new
   (26)   Institutions should ensure that they have internal capital which, having regard to the
          risks to which they are or might be exposed, is adequate in quantity, quality and
          distribution. Accordingly, institutions should have strategies and processes in place for
          assessing and maintaining the adequacy of their internal capital.
   (27)   Competent authorities should evaluate the adequacy of own funds of institutions,
          having regard to the risks to which the latter are exposed.
   (28)   In order for the internal market to operate effectively it is essential that there should be
          significantly enhanced convergence in implementation and application of the
          provisions of harmonised Community legislation.
   (29)   For the same reason and to ensure that Community institutions which are active in
          several Member States are not disproportionately burdened as a result of the continued
          responsibilities of individual Member State competent authorities for authorisation and
          supervision, it is essential to significantly enhance the cooperation between competent
          authorities. In this context the role of the consolidated supervisor should be
          strengthened.
   (30)   In order for the internal market to operate with increasing effectiveness and for
          citizens of the Community to be afforded adequate levels of transparency it is
          necessary that competent authorities disclose publicly and in a way which allows for
          meaningful comparison the manner in which the requirements of this Directive are
          implemented.
   (31)   In order to strengthen market discipline and stimulate institutions to improve their
          market strategy, risk control and internal management organisation, appropriate public
          disclosures by institutions should be provided for.
                                                                   93/6/EEC Recital 25 (adapted)
                                                                   new
   (32)   Whereas technical adaptations to the detailed rules laid down in this Directive may
          from time to time be necessary to take account of new developments in the investment
          services field; whereas the Commission will accordingly propose such adaptations as
          are necessary       The measures necessary for the implementation of this Directive
          should be adopted in accordance with Council Decision 1999/468/EC of 28 June 1999
          laying down the procedures for the exercise of implementing powers conferred on the
          Commission14. ;
                                                                   93/6/EEC Recital 26
   Whereas the Council should, at a later stage, adopt provision for the adaptation of this
   Directive to technical progress in accordance with Council Decision 87/373/EEC of 13 July
   1987 laying down the procedures for the exercise of implementing powers conferred on the
   14
          OJ L 184, 17.7.1999, p. 23.
EN                                                  8                                                  EN
 ---pagebreak---    Commission15; whereas meanwhile the Council itself, on a proposal from the Commission,
   should carry out such adaptations;
                                                                    93/6/EEC Recital 27 (adapted)
   Whereas provision should be made for the review of this Directive within three years of the
   date of its application in the light of experience, developments on financial markets and work
   in international fora of regulatory authorities; whereas that review should also include the
   possible review of the list of areas that may be subject to technical adjustment;
                                                                    93/6/EEC Recital 28
   Whereas this Directive and Directive 93/22/EEC on investment services in the securities field
   are so closely interrelated that their entry into force on different dates could lead to the
   distortion of competition;
                                                                    new
   (33)    In order to avoid disruption to markets and to ensure continuity in overall levels of
           own funds, it is appropriate to provide for specific transitional arrangements.
   (34)    This Directive respects the fundamental rights and observes the principles recognised
           in particular by the Charter of Fundamental Rights of the European Union as general
           principles of Community law.
   (35)    The obligation to transpose this Directive into national law should be confined to those
           provisions which represent a substantive change as compared with the earlier
           Directives. The obligation to transpose the provisions which are unchanged arises
           under the earlier Directives.
   (36)    This Directive should be without prejudice to the obligations of the Member States
           relating to the time-limits for transposition into national law of the Directives set out in
           Annex VIII, Part B.
   15
           OJ No L 197, 18. 7. 1987, p. 33.
EN                                                   9                                                  EN
 ---pagebreak---                                                                      93/6/EEC (adapted)
   HASHAVE ADOPTED THIS DIRECTIVE:
                                       ⌦ CHAPTER I ⌫
                    ⌦ Subject matter, scope and definitions ⌫
                                           ⌦ SECTION 1 ⌫
                               ⌦ SUBJECT MATTER AND SCOPE ⌫
                                                                     93/6/EEC (adapted)
                                                  Article 1
   1.     ⌦ This directive lays down the capital adequacy requirements applying to investment
   firms and credit institutions, the rules for their calculation and the rules for their prudential
   supervision. ⌫ Member States shall apply the requirements of this Directive to investment
   firms and credit institutions as defined in Article 2.
   2.     A Member State may impose additional or more stringent requirements on the
   investment firms and credit institutions that it has authorizsed.
                                                                     new
                                                  Article 2
   1.     Subject to Articles 18, 20, 28 to 32, 34 and 39 of this Directive, Articles 68 to 73 of
   Directive [2000/12/EC] shall apply mutatis mutandis to investment firms.
            In addition, Articles 71 to 73 of Directive [2000/12/EC] shall apply in the following
            situations:
            (a)    an investment firm has as a parent a parent credit institution in a Member State;
            (b)    a credit institution has as a parent a parent investment firm in a Member State.
            Where a financial holding company has as subsidiary both a credit institution and an
            investment firm, requirements on the basis of the consolidated financial situation of
            the financial holding company shall apply to the credit institution.
EN                                                   10                                              EN
 ---pagebreak---                                                                      93/6/EEC Art 7 (1) and (2)
                                                                  (adapted)
                                                  Article 7
                                            General Principles
   1.       The capital requirements imposed in Articles 4 and 5 for institutions which are neither
   parent undertakings nor subsidiaries of such undertakings shall be applied on a solo basis.
   2.       The requirements imposed in Articles 4 and 5 for:
   –         any institution which has a credit institution within the meaning of Directive
             92/30/EEC, an investment firm or another financial institution as a subsidiary or
             which holds a participation in such an entity, and
   –         any institution the parent undertaking of which is a financial holding company
   shall be applied on a consolidated basis in accordance with the methods laid down in the
   abovementioned Directive and in paragraphs 7 to 14 of this Article.
                                                                     93/6/EEC Art. 7 (3) (adapted)
                                                                     1 2004/xx/EC Art. 1
                                                                     new
   2.       When a group covered by paragraph 2 ⌦ paragraph 1⌫does not include a credit
   institution, Directive 92/30/EEC ⌦ [2000/12/EC] ⌫ shall apply, subject to the following
   adaptations:
   –         « financial holding company » shall means a financial institution, the subsidiary
             undertakings of which are either exclusively or mainly investment firms or other
             financial institutions, at least one of which is an investment firm, and which is not a
             mixed financial holding company within the meaning of Directive 2002/87/EC of the
             European Parliament and of the Council of 16 December 2002 on the supplementary
             supervision of credit institutions, insurance undertakings and investment firms in a
             financial conglomerate16,
   –         «mixed-activity holding company » shall means a parent undertaking, other than a
             financial holding company or an investment firm or a mixed financial holding
             company within the meaning of Directive 2002/87/EC, the subsidiaries of which
             include at least one investment firm,
   –         -      competent authorities shall means the national authorities which are
             empowered by law or regulation to supervise investment firms
   –         the second subparagraph of Article 3 (5) of Directive 92/30/EEC shall not apply,
   16
            OJ L 35, 11.2.2003, p.1
EN                                                   11                                              EN
 ---pagebreak---                 (a) every reference to credit institutions shall be construed as a reference to
                    investment firms; 
            (b)     in Articles 4 ⌦ 125 ⌫ (1) and (2) and 7 ⌦ 140 (2) ⌫ (5) of Directive
                    92/30/EEC ⌦ [2000/12/EC] ⌫ each reference to ⌦ other articles
                    of ⌫ Directive 77/780/EEC ⌦ [2000/12/EC] ⌫ shall be ⌦ construed as ⌫
                    replaced by a reference to Directive 93/22/EEC ⌦ 2004/39/EC ⌫ ;
            (c)     for the purpose of Article 3 (9) and 8 ⌦ 39(3) ⌫ of Directive 92/30/EEC
                    ⌦ [2000/12/EC] ⌫ the references to the                  1 European     Banking
                    Committee  shall be ⌦ construed as ⌫ substituted by references to the
                    Council and the Commission;
            (d)     ⌦ by derogation to Article 140(1) of Directive [2000/12/EC], where a group
                    does not include a credit institution, ⌫ the first sentence of ⌦ that ⌫
                    Article 7 shall be replaced by the following: «Where an investment firm, a
                    financial holding company or a mixed-activity holding company controls one
                    or more subsidiaries which are insurance companies, the competent authorities
                    and the authorities entrusted with the public task of supervising insurance
                    undertakings shall cooperate closely».
                                                                   93/6/EEC Art 7 (4)
   4. The competent authorities required or mandated to exercise supervision of groups covered
   by paragraph 3 on a consolidated basis may, pending further coordination on the supervision
   of such groups on a consolidated basis and where the circumstances justify it, waive that
   obligation provided that each investment firm in such a group:
   (i)      uses the definition of own funds given in paragraph 9 of Annex V;
   (ii)     meets the requirements imposed in Articles 4 and 5 on a solo basis;
   (iii)    sets up systems to monitor and control the sources of capital and funding of all other
            financial institutions within the group.
                                                                   93/6/EC Art. 7 (5) and (6)
                                                                (adapted)
   5. The competent authorities shall require investment firms in a group which has been granted
   the waiver provided for in paragraph 4 5 to notify them of those the risks including those
   associated with the composition and sources of their capital and funding, which could
   undermine their financial positions, including those associated with the composition and
   sources of their capital and funding. If the competent authorities then consider that the
   financial positions of those investment firms is not adequately protected, they shall require
   them to take measures including, if necessary, limitations on the transfer of capital from such
   firms to group entities.
   6. Where the competent authorities waive the obligation of supervision on a consolidated
   basis provided for in paragraph 4 5 they shall take other appropriate measures to monitor the
   risks, namely large exposures, of the whole group, including any undertakings not located in a
   Member State.
EN                                                 12                                              EN
 ---pagebreak---                                                                    93/6/EEC (adapted)
                                       ⌦ SECTION 2⌫
                                         DEFINITIONS
                                                                   93/6/EEC Art. 2 (1) (adapted)
                                                                   new
                                               Article 3
   1. For the purposes of this Directive         the following definitions shall apply: 
       (a)1. credit institutions shall mean ⌦ means credit institutions as defined in Article
              4(1) of Directive [2000/12/EC]; ⌫; all institutions that satisfy the definition in
              the first indent of Article 1 of the First Council Directive (77/780/EEC) of 12
              December 1977 on the coordination of laws, regulations and administrative
              provisions relating to the taking up and pursuit of the business of credit
              institutions17 which are subject to the requirements imposed by Directive
              89/647/EEC;
                                                                   2004/39/EC Art. 67.2 (adapted)
                                                                   new
       (b)    investment firms shall mean ⌦ means ⌫ all institutions that satisfy the
              definition ⌦ as defined in Article 4(1) of Directive 2004/39/EC ⌫ of the
              European Parliament and of the Council of 21 April 2004 on markets in
              financial instruments, which are subject to the requirements imposed by the
              same ⌦ that ⌫ Directive, excluding:
              (a)(i) credit institutions;
              (b)(ii) local firms as defined in 20 ⌦ point (p) of paragraph 1 of this Article;
                       ⌫, and
              (c)(iii) firms which         are  only       authorised to provide the service of
                       investment advice and/or  receive and transmit orders from investors
                       without in both cases holding money or securities belonging to their
                       clients and which for that reason may not at any time place themselves in
                       debit with their clients;
   17
      OJ No L 322, 17. 12. 1977, p. 30. Directive as amended by Directive 89/646/EEC (OJ No L 386, 30.
      12. 1989, p. 1).
EN                                                 13                                                  EN
 ---pagebreak---                                                               93/6/EEC Art 2(3) to (4)
                                                           (adapted (adapted)
      3. (c) institutions shall mean ⌦means ⌫ credit institutions and investment firms;
      4. (d) recognizzed third-country investment firms shall mean ⌦means ⌫ firms
             ⌦ meeting the following conditions: ⌫
             ⌦ (i) firms ⌫ which, if they were established within the Community, would
                    be covered by the definition of investment firm;
             ⌦ (ii) firms ⌫ in 2 which are authoriszed in a third country;
             ⌦ (iii) firms ⌫ and which are subject to and comply with prudential rules
                    considered by the competent authorities as at least as stringent as those
                    laid down in this Directive;
                                                              93/6/EEC (adapted)
                                                              new
      5. (e) financial instruments shall mean ⌦means ⌫ the instruments listed in Section
             B of the Annex to Directive 93/22/EEC any contract that gives rise to both a
             financial asset of one party and a financial liability or equity instrument of
             another party ;
                                                              93/6/EEC Art. 2(6) (7)
   6. the trading book of an institution shall consist of:
      (a)    its proprietary positions in financial instruments, commodities and commodity
             derivatives which are held for resale and/or which are taken on by the
             institution with the intention of benefiting in the short term from actual and/or
             expected differences between their buying and selling prices, or from other
             price or interest-rate variations, and positions in financial instruments,
             commodities and commodity derivatives, arising from matched principal
             broking, or positions taken in order to hedge other elements of the trading
             book;
      (b)    the exposures due to the unsettled transactions, free deliveries and over-the-
             counter (OTC) derivative instruments referred to in paragraphs 1, 2, 3 and 5 of
             Annex II, the exposures due to repurchase agreements and securities and
             commodities lending which are based on securities or commodities included in
             the trading book as defined in (a) referred to in paragraph 4 of Annex II, those
             exposures due to reverse repurchase agreements and securities-borrowing and
             commodities-borrowing transactions described in the same paragraph, provided
             the competent authorities so approve, which meet either conditions (i), (ii), (iii)
             and (v) or conditions (iv) and (v) as follows:
             (i)    the exposures are marked to market daily following the procedures laid
                    down in Annex II;
EN                                            14                                                 EN
 ---pagebreak---              (ii)   the collateral is adjusted in order to take account of material changes in
                    the value of the securities or commodities involved in the agreement or
                    transaction in question, according to a rule acceptable to the competent
                    authorities;
             (iii) the agreement or transaction provides for the claims of the institution to
                    be automatically and immediately offset against the claims of its counter-
                    party in the event of the latter's defaulting;
             (iv) the agreement or transaction in question is an interprofessional one;
             (v)    such agreements and transactions are confined to their accepted and
                    appropriate use and artificial transactions, especially those not of a short-
                    term nature, are excluded; and
      (c)    those exposures in the form of fees, commission, interest, dividends and
             margin on exchange-traded derivatives which are directly related to the items
             included in the trading book referred to in paragraph 6 of Annex II.
      Particular items shall be included in or excluded from the trading book in accordance
      with objective procedures including, where appropriate, accounting standards in the
      institution concerned, such procedures and their consistent implementation being
      subject to review by the competent authorities;
                                                                 93/6/EEC Art 2(7) (adapted)
   7. parent undertaking, subsidiary undertaking, and financial institution shall be defined
      in accordance with Article 1 of Directive 92/30/EEC;
                                                                 93/6/EEC Art 2(8) (adapted)
   8. financial holding company shall mean a financial institution the subsidiary
      undertakings of which are either exclusively or mainly credit institutions, investment
      firms or other financial institutions, one of which at least is a credit institution or an
      investment firm;
                                                                new
      (f)    parent investment firm in a Member State means an investment firm which has
             an institution or another financial institution as a subsidiary or which holds a
             participation in such entities, and which is not itself a subsidiary of another
             institution authorised in the same Member State, or of a financial holding
             company set up in the same Member State, and in which no other institution
             authorised in the same Member State holds a participation;
      (g)    EU parent investment firm means a parent investment firm in a Member State
             which is not a subsidiary of another institution authorised in any Member State,
             or of a financial holding company set up in any Member State, and in which no
             other institution authorised in any Member State holds a participation;
EN                                             15                                                 EN
 ---pagebreak---                                                               93/6/EEC Art 2 (9) (adapted)
   9.  risk weightings shall mean the degrees of credit risk applicable to the relevant
       counter-parties under Directive 89/647/EEC. However assets constituting claims on
       and other exposures to investment firms or recognized third-country investment
       firms and exposures incurred to recognized clearing houses and exchanges shall be
       assigned the same weighting as that assigned where the relevant counterparty is a
       credit institution;
                                                              98/33/EC Art. 3.1 (adapted)
       10(h) over-the-counter (OTC) derivative instruments shall mean ⌦means ⌫ the off
              balance sheet items ⌦ falling within the list in Annex IV to Directive
              [2000/12/EC] other than those items to which an exposure value of zero is
              attributed under paragraph 2 of Annex III of that Directive; ⌫ to which
              according to the first subparagraph of Article 6(3) of Directive 89/647/EEC the
              methods set out in Annex II to the said Directive shall be applied;
                                                              93/6/EEC (adapted)
       11.(i) regulated market shall mean ⌦means ⌫ a market that satisfies the definition
              given in Article 1 (13) of Directive 93/22/EEC; ⌦ as defined in Article 4(14)
              of Directive 2004/39/EC ⌫;
                                                              93/6/EEC (adapted)
   12. qualifying items shall mean long and short positions in the assets referred to in
       Article 6 (1) (b) of Directive 89/647/EEC and in debt instruments issued by
       investment firms or by recognized third-country investment firms. It shall also mean
       long and short positions in debt instruments provided that such instruments meet the
       following conditions: such instruments must firstly be listed on at least one regulated
       market in a Member State or on a stock exchange in a third country provided that
       that exchange is recognized by the competent authorities of the relevant Member
       State; and secondly both be considered by the institution concerned to be sufficiently
       liquid and, because of the solvency of the issuer, be subject to a degree of default risk
       which is comparable to or lower than that of the assets referred to in Article 6 (1) (b)
       of Directive 89/647/EEC; the manner in which the instruments are assessed shall be
       subject to scrutiny by the competent authorities, which shall overturn the judgment of
       the institution if they consider that the instruments concerned are subject to too high
       a degree of default risk to be qualifying items.
       Notwithstanding the foregoing and pending further coordination, the competent
       authorities shall have the discretion to recognize as qualifying items instruments
       which are sufficiently liquid and which, because of the solvency of the issuer, are
       subject to a degree of default risk which is comparable to or lower than that of the
       assets referred to in Article 6 (1) (b) of Directive 89/647/EEC. The default risk
       associated with such instruments must have been evaluated at such a level by at least
       two credit-rating agencies recognized by the competent authorities or by only one
EN                                             16                                                EN
 ---pagebreak---        such credit-rating agency so long as they are not rated below such a level by any
       other credit-rating agency recognized by the competent authorities.
       The competent authorities may, however, waive the condition imposed in the
       preceding sentence if they judge it inappropriate in the light of, for example, the
       characteristics of the market, the issuer, the issue, or some combination of those
       characteristics.
       Furthermore, the competent authorities shall require the institutions to apply the
       maximum weighting shown in Table 1 in paragraph 14 of Annex I to instruments
       which show a particular risk because of the insufficient solvency of the issuer or
       liquidity.
       The competent authorities of each Member State shall regularly provide the Council
       and the Commission with information concerning the methods used to evaluate the
       qualifying items, in particular the methods used to assess the degree of liquidity of
       the issue and the solvency of the issuer;
   13. central government items shall mean long and short positions in the assets referred to
       in Article 6 (1) (a) of Directive 89/647/EEC and those assigned a weighting of 0 % in
       Article 7 of the same Directive;
                                                               93/6/EEC Art 2 (14) (adapted)
       14.(j) convertible shall mean ⌦means ⌫ a security which, at the option of the
              holder, may be exchanged for another security, usually the equity of the issue;
                                                               98/31/EC Art. 1.1(b) (adapted)
       15.(k) «warrant» shall mean ⌦means ⌫ a security which gives the holder the right
              to purchase an underlying at a stipulated price until or at the warrants’ expiry
              date ⌦ of the warrant and which ⌫ may be settled by the delivery of the
              underlying itself or by cash settlement;
       16. (l)«stock financing» shall mean ⌦means ⌫ positions where physical stock has
              been sold forward and the cost of funding has been locked in until the date of
              the forward sale;
                                                               98/31/EC Art. 1.1(c) (adapted)
       17.(m) «repurchase agreement» and «reverse repurchase agreement» shall mean ⌦
              mean ⌫ any agreement in which an institution or its counter-party transfers
              securities or commodities or guaranteed rights relating to title to securities or
              commodities where that guarantee is issued by a recognised exchange which
              holds the rights to the securities or commodities and the agreement does not
              allow an institution to transfer or pledge a particular security or commodity to
              more than one counter-party at one time, subject to a commitment to
              repurchase them – (or substituted securities or commodities of the same
              description) - at a specified price on a future date specified, or to be specified,
              by the transferor, being a repurchase agreement for the institution selling the
EN                                             17                                                 EN
 ---pagebreak---          securities or commodities and a reverse repurchase agreement for the
         institution buying them;
                                                         93/6/EEC Art 2(17) 2nd
                                                      paragraph
   A reverse repurchase agreement shall be considered an interprofessional transaction
   when the counter-party is subject to prudential coordination at Community level or is
   a Zone A credit institution as defined in Directive 89/647/EEC or is a recognized
   third-country investment firm or when the agreement is concluded with a recognized
   clearing house or exchange;
                                                         98/31/EC Art. 1.1(d) (adapted)
   18.(n) «securities or commodities lending» and «securities or commodities
         borrowing» shall mean ⌦ mean ⌫ any transaction in which an institution or
         its counter-party transfers securities or commodities against appropriate
         collateral subject to a commitment that the borrower will return equivalent
         securities or commodities at some future date or when requested to do so by the
         transferor, that transaction being securities or commodities lending for the
         institution transferring the securities or commodities and being securities or
         commodities borrowing for the institution to which they are transferred;
                                                         98/31/EC Art. 1.1(d)
   Securities or commodities borrowing shall be considered an interprofessional
   transaction when the counter-party is subject to prudential coordination at
   Community level or is a Zone A credit institution as defined in Directive
   89/647/EEC or is a recognised third-country investment firm or when the transaction
   is concluded with a recognised clearing house or exchange;
                                                         93/6/EEC Art 2(19) (adapted)
   19.(o) clearing member shall mean ⌦means ⌫ a member of the exchange or the
         clearing house which has a direct contractual relationship with the central
         counterparty (market guarantor); non-clearing members must have their trades
         routed through a clearing member;
                                                         93/6/EEC Art 2(20) (adapted)
                                                         new
   20.(p) local firm shall mean ⌦means ⌫ a firm dealing only for its on own account
             on markets  in a financial-futures or options exchange            or other
         derivatives and on cash markets for the sole purpose of hedging positions on
         derivatives markets or which deals  for the accounts of or making a price to
         other members of those markets  the same exchange and which are 
         guaranteed by a clearing members of the same exchange markets, where 
         Rresponsibility for ensuring the performance of contracts entered into by such
         a firms must be ⌦ is ⌫ assumed by a clearing members of the same
EN                                       18                                              EN
 ---pagebreak---                    exchange markets;  , and such contracts must be taken into account in the
                   calculation of the clearing member's overall capital requirements so long as the
                   local firm's positions are entirely separate from those of the clearing member;
                                                                     93/6/EEC Art 2(21) (adapted)
            21.(q) delta shall mean ⌦means ⌫ the expected change in an option price as a
                   proportion of a small change in the price of the instrument underlying the
                   option;
                                                                     93/6/EEC Art 2(22) (adapted)
   22.      for the purposes of paragraph 4 of Annex I, long position shall mean a position in
            which an institution has fixed the interest rate it will receive at some time in the
            future, and short position shall mean a position in which it has fixed the interest rate
            it will pay at some time in the future;
                                                                     93/6/EEC Art 2(23) (adapted)
            23.(r) own funds shall mean ⌦means ⌫ own funds as defined in Directive
                   89/299/EEC ⌦ [2000/12/EC] ⌫.This definition may, however, be amended
                   in the circumstances described in Annex V;
                                                                     93/6/EC Art. 2 (24) and (25)
                                                                  (adapted)
   24.    initial capital shall mean items 1 and 2 of Article 2(1) of Directive 89/299/EEC;
   25     original own funds shall mean the sum of items 1, 2 and 3, less the sum of items 9, 10
   and 11 of Article 2 (1) of Directive 89/299/EEC;
                                                                     93/6/EEC Art 2 (26)
            26.(s) capital shall mean own funds;.
                                                                     93/6/EEC Art 2(27) (adapted)
            27. modified duration shall be calculated using the formula set out in paragraph 26
            of Annex I.
                                                                     new
            For the purposes of applying supervision on a consolidated basis, the term
            investment firm shall include recognised third-country investment firms.
            For the purposes of point (e) of the first subparagraph, financial instruments shall
            include both primary financial instruments or cash instruments, and derivative
            financial instruments the value of which is derived from the price of an underlying
            financial instrument or a rate or an index or the price of an underlying other item and
EN                                                   19                                              EN
 ---pagebreak---              include as a minimum the instruments specified in Section C of Annex I of Directive
             2004/39/EC.
                                                                    93/6/EEC Art 2 (7) and (8)
                                                                 (adapted)
   2.       ⌦ The         terms ⌫“parent       undertaking”,“subsidiary     undertaking”,⌦ ”asset
   management company” ⌫ and “financial institution” shall be ⌦ cover undertakings ⌫
   defined in accordance with ⌦ as such in Article 4⌫ Article 1 of Directive 92/30/EEC
   ⌦[2000/12/EC] ⌫.
   ⌦ The terms ⌫ “financial holding company”, ⌦ “parent financial holding company in a
   Member State”, “EU parent financial holding company” and “ancillary services undertaking”
   ⌫ shall mean a financial institution the subsidiary undertaking of which are either
   exclusively or mainly credit institutions, investment firms or other financial institutions, one
   of which at least is a credit institution or an investment firm ⌦ shall cover undertakings
   defined as such in Article 4 of Directive [2000/12/EC], save that every reference to credit
   institutions shall be read as a reference to institutions. ⌫
                                                                    new
   3.       For the purposes of applying Directive [2000/12/EC] to groups covered by Article
   2(1), which do not include a credit institution, the following definitions shall apply:
                                                                    2002/87/EC Art. 26 (adapted)
             1.(a) «financial holding company » means a financial institution, the subsidiary
                    undertakings of which are either exclusively or mainly investment firms or
                    other financial institutions, at least one of which is an investment firm, and
                    which is not a mixed financial holding company within the meaning of
                    Directive 2002/87/EC18 of the European Parliament and of the Council.;
             2. (b) «mixed-activity holding company » means a parent undertaking, other than a
                    financial holding company or an investment firm or a mixed financial holding
                    company within the meaning of Directive 2002/87/EC, the subsidiaries of
                    which include at least one investment firm;
             3. (c) “competent authorities” means the national authorities which are empowered
                    by law or regulation to supervise investment firms.
   18
            OJ L 35, 11.2.2003, p.1
EN                                                   20                                             EN
 ---pagebreak---                                                                      93/6/EEC (adapted)
                                       ⌦ CHAPTER II ⌫
                                       INITIAL CAPITAL
                                                                     93/6/EEC Art 2(24) (adapted)
                                                 Article 4
   1. Initial capital shall mean ⌦means points (a) and (b) ⌫ items 1 and 2 of Article ⌦ 57 ⌫
   2 (1) of Directive 89/299/EEC ⌦[2000/12/EC]⌫.
                                                                     93/6/EEC Art. 3(1) and (2)
                                                                 (adapted)
                                                 Article 5
   1.       Investment firms ⌦ that do not deal in any financial instruments for their own
   account or underwrite issues of financial instruments on a firm commitment basis, but ⌫
   which hold clients' money and/or securities and which offer one or more of the following
   services, shall have initial capital of ECU ⌦ EUR ⌫ 125 000:
             (a)   the reception and transmission of investors' orders for financial instruments;
             (b)   the execution of investors' orders for financial instruments;
             (c)   the management of individual portfolios of investments in financial
                   instruments.
             provided that they do not deal in any financial instruments for their own account or
             underwrite issues of financial instruments on a firm commitment basis.
             The holding of non-trading-book positions in financial instruments in order to invest
             own funds shall not be considered as dealing for the purposes set out in the first
             paragraph or for the purposes of paragraph 2.
   2.       The competent authorities may, however, allow an investment firm which executes
   investors' orders for financial instruments to hold such instruments for its own account if
   ⌦ the following conditions are met ⌫ :
             (a)   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;
EN                                                  21                                                 EN
 ---pagebreak---             (c)    the firm meets the requirements imposed ⌦ 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 instruments in order to invest
            own funds shall not be considered as dealing for the purposes set out in paragraph 1
            or for the purposes of paragraph 3.
   3.2     Member States may reduce the amount referred to in paragraph 1 to ECU ⌦ EUR ⌫
   50000 where a firm is not authoriszed to hold clients' money or securities, to deal for its own
   account, or to underwrite issues on a firm commitment basis.
                                                                    93/6/EEC Art 3 (3) (adapted)
   3. All other investment firms shall have initial capital of ECU 730 000.
                                                                    2004/39/EC Art. 67(2)
                                                                 (adapted)
                                                Article 6
   4. The firms referred to in point (b) of Article 2(2)⌦ Local firms ⌫ shall have initial capital
   of EUR 50 000 in so far as they benefit from the freedom of establishment or to provide
   services ⌦ specified in ⌫ under Articles 31 or 32 of Directive 2004/39/EC.
                                                                    2004/39/EC Article 67 (3)
                                                                 (adapted)
                                                Article 7
   Pending revision of Directive 93/6/EEC, theCoverage for the firms referred to in point (b)(iii)
   of Article 2 ⌦ 3 ⌫ (1) shall take one of the following forms:
   (a)      initial capital of EUR 50 000;
   (b)      professional indemnity insurance covering the whole territory of the Community or
            some other comparable guarantee against liability arising from professional
            negligence, representing at least EUR 1 000 000 applying to each claim and in
            aggregate EUR 1 500 000 per year for all claims;
   (c)      a combination of initial capital and professional indemnity insurance in a form
            resulting in a level of coverage equivalent to that referred to in points (a) or (b).
   The amounts referred to in the first subparagraph shall be periodically reviewed by the
   Commission in order to take account of changes in the European Index of Consumer Prices as
EN                                                  22                                                 EN
 ---pagebreak---    published by Eurostat, in line with and at the same time as the adjustments made under
   Article 4(7) of Directive 2002/92/EC of the European Parliament and of the Council19 (*).
                                               ⌦ Article 8 ⌫
   If an investment firm referred to in point (b)(iii) of Article 2 ⌦ 3 ⌫ (1) is also registered
   under Directive 2002/92/EC it shall comply with Article 4(3) of that Directive and have
   coverage in one of the following forms:
   (a)       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
             negligence, representing at least EUR 500 000 applying to each claim and in
             aggregate EUR 750 000 per year for all claims;
   (c)       a combination of initial capital and professional indemnity insurance in a form
             resulting in a level of coverage equivalent to that referred to in points (a) or (b).
                                                                     93/6/EEC Art 3(3) (adapted)
                                                  Article 9
   All other investment firms shall have initial capital of ECU ⌦ EUR ⌫ 730 000.
                                                                     93/6/EEC Art 3(5) to (8)
                                                                  (adapted)
                                                 Article 10
   1.      ⌦ By derogation to Articles 5(1), 5(3), 6 and 9, ⌫ Notwithstanding paragraphs 1 to
   4, Member States may continue the authorisation of investment firms and firms covered by
   ⌦ Article 6 ⌫ paragraph 4 in existence before ⌦ 31 December 1995 ⌫ this Directive is
   applied the own funds of which are less than the initial capital levels specified for them in
   ⌦ Articles 5(1), 5(3), 6 and 9 ⌫ paragraphs 1 to 4.
   The own funds of such firms shall not fall below the highest reference level calculated after
   the date of notification of this Directive ⌦ 1993/6/EEC ⌫. That reference level shall be the
   average daily level of own funds calculated over a six-month period preceding the date of
   calculation. It shall be calculated every six months in respect of the corresponding preceding
   period.
   2.      If control of a firm covered by paragraph 5⌦ 1 ⌫ is taken by a natural or legal
   person other than the person who controlled it previously, the own funds of that firm must
   attain at least the level specified for it in ⌦ Articles 5(1), 5(3), 6 and 9 ⌫ paragraphs 1 to 4,
   except in the following situations: (i)-         in the case of the first transfer by inheritance
   19
           OJ L 9, 15.1.2003, p. 3.
EN                                                   23                                              EN
 ---pagebreak---    after ⌦ 31 December 1995 ⌫ the application of this Directive, subject to the competent
   authorities' approval, for not more than 10 years after that transfer.;
   (ii)      in the case of a change in the composition of a partnership, as long as at least one of
             the partners at the date of the application of this Directive remains in the partnership,
             for not more than 10 years after the date of the application of this Directive.
   3.      In certain specific circumstances, and with the consent of the competent authorities,
   however, in the event of a merger of two or more investment firms and/or firms covered by
   paragraph 4⌦ Article 6⌫, the own funds of the firm produced by the merger need not attain
   the level specified in paragraphs 1 to 4⌦ Articles 5(1), 5(3), 6 and 9 ⌫. Nevertheless,
   during any period when the levels specified in paragraphs 1 to 4 ⌦ Articles 5(1), 5(3), 6 and
   9 ⌫ have not been attained, the own funds of the new firm may not fall below the merged
   firms' total own funds at the time of the merger.
   4.      The own funds of investment firms and firms covered by paragraph 4⌦ Article 6 ⌫
   may not fall below the level specified in paragraphs 1 to 5 and 7 ⌦ Articles 5(1), 5(3), 6, 9,
   10(1) and 10(3)⌫.
   If they do, however, the competent authorities may, where the circumstances justify it, allow
   such firms a limited period in which to rectify their situations or cease their activities.
                                                                     new
                                           CHAPTER III
                                       TRADING BOOK
                                                Article 11
   1.      The trading book of an institution shall consist of all positions in financial instruments
   and commodities held either with trading intent or in order to hedge other elements of the
   trading book, which must either be free of any restrictive covenants on their tradability or able
   to be hedged.
   2.      Positions held with trading intent are those held intentionally 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 term
   “positions” shall include proprietary positions, positions arising from client servicing and
   market making.
   3.      Trading intent shall be evidenced based on the strategies, policies and procedures set
   up by the institution to manage the position or portfolio in accordance with Annex VII Part A.
   4.      Institutions shall establish and maintain systems and controls to manage their trading
   book, in accordance with Annex VII, Part B.
EN                                                  24                                                 EN
 ---pagebreak---    5.      Internal hedges may be included in the trading book, in which case Annex VII Part C
   shall apply.
                                                                   new
                                          CHAPTER IV
                                          OWN FUNDS
                                                                   93/6/EEC Art. 2 (25) (adapted)
                                               Article 12
   Original own funds means the sum of items 1, 2 and ⌦ points (a) to (c) ⌫ , less the sum of
   items 9, 10 and 11 ⌦ points (i) to (k) ⌫ of Article 2 (1) ⌦ 57 ⌫ of Directive 89/299/EEC
   ⌦ [2000/12/EC] ⌫.
                                                                   new
   The Commission shall, by 1 January 2009 at the latest, submit an appropriate proposal to the
   European Parliament and to the Council for amendment of this Chapter.
                                                                   93/6/EEC Annex V first and
                                                                second subparagraph (adapted)
                                                                   new
                                               Article 13
   1.         Subject to paragraphs 2 to 5 of this Article, and Articles 14 to 17, Tthe own funds
   of investment firms and credit institutions shall be defined ⌦ determined ⌫ in accordance
   with Directive 89/299/EEC ⌦ [2000/12/EC] ⌫ .
            In addition, the first subparagraph applies to investment firms which do not have one
            of the legal forms referred to in Article 1 (1) of the Fourth Council Directive
            78/660/EEC.
                                                                   93/6/EEC Annex V (1) 2nd
                                                                subparagraph (2) to (5) (adapted)
                                                                   1 98/31/EC Art. 1.7 and Annex
                                                                4(a) (b)
                                                                   new
   2.         1 Notwithstanding ⌦ By derogation to ⌫ paragraph 1, the competent authorities
   may permit those institutions which are obliged to meet the capital own-funds requirements
   calculated in accordance with ⌦ Articles 21 and 28 to 32 and ⌫ laid down in Annexes I, II,
   III, IV, VI, VII and VIII ⌦ and III to VI ⌫ to use, for that purpose only, an alternative
EN                                                 25                                              EN
 ---pagebreak---    definition when meeting those requirements only ⌦ determination ⌫of own funds.  No
   part of the own funds used for that purpose thus provided may be used simultaneously to meet
   other capital own-funds requirements.
             This alternative definition ⌦ determination ⌫ shall be the sum of the items set out
             in points (a) to (c) below, minus the item set out in point (d) below, with include the
             following items (a), (b) and (c) less item (d), the deduction of that last item being left
             to the discretion of the competent authorities:
             (a)   own funds as defined in Directive 89/299/EEC ⌦ [2000/12/EC] ⌫ excluding
                   only items (12) ⌦ points (l) to (p) ⌫ and (13) of Article 2 (1) ⌦ 57 ⌫ of
                   that Directive for those investment firms which are required to deduct item (d)
                   of this paragraph from the total of items (a), (b) and (c) of this paragraph;
             (b)   an institution's net trading-book profits net of any foreseeable charges or
                   dividends, less net losses on its other business provided that none of those
                   amounts has already been included in item (a) of this paragraph under the items
                   set out in paragraphs (2) or (11) ⌦ points (b) or (k) ⌫ of Article 2 (1) of
                   Directive 89/299/EEC ⌦ 57 of Directive [2000/12/EC] ⌫;
             (c)   subordinated loan capital and/or the items referred to in paragraphs 5, subject
                   to the conditions set out in paragraphs 3 to 7 ⌦ and 4 and Article 14 ⌫ ;
             (d)   illiquid assets as defined ⌦ specified ⌫ in paragraph 8 ⌦ Article 15 ⌫ .
   3.       The subordinated loan capital referred to in ⌦ point (c) ⌫ 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 the ⌦ that ⌫
   institution's overall requirements.
             In addition, an institution shall notify the competent authorities of all repayments on
             such subordinated loan capital as soon as its own funds fall below 120 % of its
             overall ⌦ capital ⌫ requirements.
   4.       The subordinated loan capital referred to in ⌦ point (c) 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⌫ laid down in Annexes I, II,
   III, IV, VI, VII, and VIII ⌦ to VI ⌫ and may approach that maximum only in particular
   circumstances acceptable to the relevant authorities.
   5.       The competent authorities may permit institutions to replace the subordinated loan
   capital referred to ⌦ in point (c) of paragraph 2 ⌫ in paragraphs 3 and 4 with items 3 and 5
   to 8 ⌦ points (d) to (h) ⌫ of Article 2 (1) of Directive 89/299/EEC ⌦ 57 of Directive
   [2000/12/EC] ⌫.
EN                                                  26                                                  EN
 ---pagebreak---                                                                     98/31/EC Annex .4(c) (adapted)
                                                Article 14
   1.      The competent authorities may permit investment firms to exceed the ceiling for
   subordinated loan capital ⌦ set out ⌫ prescribed in paragraph 4 ⌦ Article 13(4) ⌫ if they
   judge it prudentially adequate and provided that the total of such subordinated loan capital
   and the items referred to in paragraph 5 ⌦ Article 13(5) ⌫ does not exceed 200 % of the
   original own funds left to meet the requirements calculated in accordance with imposed in
   ⌦ Articles 21, 28 to 32 and ⌫ Annexes I, II, III, IV, VI, VII and VIII ⌦ and III to VI ⌫
   or 250 % of the same amount where investment firms deduct the item set out in point (d) of
   referred to in paragraph 2 ⌦ Article 13(2) ⌫ when calculating own funds.
   2.      The competent authorities may permit the ceiling for subordinated loan capital set out
   prescribed in paragraph 4 ⌦ Article 13(4) ⌫ to be exceeded by a credit institution if they
   judge it prudentially adequate and provided that the total of such subordinated loan capital
   and items (4) to (8) ⌦ points (d) to (h) ⌫ of Article 35(2) ⌦ 57 ⌫ of Directive
   [2000/12/EC] referred to in paragraph 5 does not exceed 250 % of the original own funds left
   to meet the requirements calculated in accordance with imposed in Articles ⌦ 28 to 32
   and ⌫ Annexes I, II, III, IV, V and VI ⌦ and III to VI ⌫.
                                                                    93/6/EEC Annex V (8)
                                                                 (adapted)
                                                Article 15
   Illiquid assets ⌦ as referred to in point (d) of Article 12(2) shall include the following: ⌫
             (a)   tangible fixed assets, (except to the extent that land and buildings may be
                   allowed to count against the loans which they are securing);
             (b)   holdings in, including subordinated claims on, credit or financial institutions
                   which may be included in the own funds of ⌦ those ⌫ such institutions,
                   unless they have been deducted under items (12) ⌦ points (l) to (p) ⌫ of
                   Article 2 (1) ⌦ 57 ⌫ of Directive 89/299/EEC ⌦ [2000/12/EC] ⌫ or under
                   Article 15(d) of this Annex ⌦ Directive ⌫ ;
             (c)   holdings and other investments, in undertakings other than credit institutions
                   and other financial institutions, which are not readily marketable;
             (d)   deficiencies in subsidiaries;
             (e)   deposits made, other than those which are available for repayment within 90
                   days, and also excluding payments in connection with margined futures or
                   options contracts;
             (f)   loans and other amounts due, other than those due to be repaid within 90 days;
EN                                                  27                                             EN
 ---pagebreak---            (g)    physical stocks, unless they are ⌦ already ⌫ subject to the capital
                  requirements imposed in Article 4 (2) and provided that such requirements are
                  not less stringent than those imposed in Article 4 (1)(iii) ⌦ at least as stringent
                  as those set out in Articles 18 to 20 ⌫ .
                                                                     93/6/EEC Annex V(8) second
                                                                  indent, second subparagraph
                                                                  (adapted)
           ⌦ For the purposes of point (b), w ⌫ Wwhere shares in a credit or financial
           institution are held temporarily for the purpose of a financial assistance operation
           designed to reorganise and save that institution, the competent authorities may waive
           this provision. They may also waive it in respect of those shares which are included
           in the investment firm's trading book,.
                                                                     93/6/EEC Annex V (9)
                                                                  (adapted)
                                                Article 16
   9. Those i Investment firms included in a group subject to ⌦ which has been granted ⌫ the
   waiver provided for described in Article 7(4) ⌦ 22 ⌫ shall calculate their own funds in
   accordance with paragraphs 1 to 8 ⌦ Articles 13 to 15 ⌫ subject to the following
   modifications:
           (a)(i) the illiquid assets referred to in paragraph 2⌦ point (d) of Article 13(2) ⌫
                  shall be deducted;
           (b)(ii) the exclusion referred to in paragraph 2 ⌦ point (a) of Article 12(2) ⌫ shall
                  not cover those components of items 12 ⌦ points (l) to (p) ⌫ of Article 2 (1)
                  ⌦ 57 ⌫ of Directive 89/299/EEC ⌦ [2000/12/EC] ⌫ which an investment
                  firm holds in respect of undertakings included in the scope of consolidation as
                  defined in Article ⌦ 2 (1) ⌫ of this Directive;
           (c)(iii) the limits referred to in points (a) and (b) of Article 6 ⌦ 66 ⌫ (1)(a) and (b)
                  of Directive 89/299/EEC ⌦ [2000/12/EC] ⌫ shall be calculated with
                  reference to the original own funds less those ⌦ the ⌫ components of items
                  (12) ⌦ points (l) to (p) ⌫ of Article 2 (1) ⌦ 57 ⌫ of Directive 89/299/EEC
                  ⌦[2000/12/EC] ⌫ described in (ii) ⌦ referred to in point (b) ⌫ which are
                  elements of the original own funds of the undertakings in question;
           (d)(iv) those ⌦ the ⌫ components of items (12) ⌦ points (l) to (p) ⌫ of Article 2
                  (1) ⌦ 57 ⌫ of Directive 89/299/EEC ⌦[2000/12/EC] ⌫ referred to in
                  point (c) shall be deducted from the original own funds rather than from the
                  total of all items as laid down prescribed in point (c) of Article 6 ⌦ 66 ⌫(1)
                  (c) of that same Directive for the purposes, in particular, of paragraphs 4 to 7
                  ⌦ Articles 13(4), 13(5) and 14 ⌫ of this Annex ⌦ Directive ⌫ .
EN                                                  28                                                EN
 ---pagebreak---                                                                   new
                                               Article 17
   1.      Where an institution calculates risk-weighted exposure amounts for the purposes of
   Annex II in accordance with the provisions of Articles 84 to 89 of Directive [2000/12/EC],
   then for the purposes of the calculation provided for in Directive [2000/12/EC] Annex VII,
   Part 1, Sub-part 4, the following shall apply:
            (a)   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;
            (b)   subject to the approval of the competent authorities, if the credit risk of the
                  counterparty is adequately taken into account in the valuation of a position
                  included in the trading book the expected loss amount for the counterparty risk
                  exposure shall be zero.
            For the purposes of point (a), for such institutions, such value adjustments shall not
            be included in own funds other than in accordance with this sub-paragraph.
   2.      For the purposes of this Article, Article 153 and 154 of Directive [2000/12/EC] shall
   apply.
                                                                   93/6/EEC (adapted)
                                    ⌦ CHAPTER V ⌫
                                        ⌦ SECTION 1 ⌫
                               PROVISIONS AGAINST RISKS
                                                                   93/6/EEC Art 4(1) 1st
                                                               subparagraph (adapted)
                                                                   new
                                               Article 18
   1.      The competent authorities shall require iInstitutions     shall have  to provide own
   funds which are always more than or equal to the sum of ⌦ the following ⌫ :
EN                                                 29                                              EN
 ---pagebreak---                                                                        98/31/EC Art. 1.2 (adapted)
             i) (a) the capital requirements, calculated in accordance with ⌦ the methods and
                     options laid down in Articles 28 to 32 and ⌫ Annexes I, II and VI and, as
                     appropriate, Annex VIII, for their trading-book business;
             ii) (b) the capital requirements, calculated in accordance with ⌦ the methods and
                     options laid down in ⌫ Annexes III and VII ⌦ IV ⌫ and, as appropriate,
                     Annex VIII, for all of their business activities.
                                                                       93/6/EEC Art. 4.1 (iii) and (iv)
                                                                    (adapted)
   (iii)     the capital requirements imposed in Directive 89/647/EEC for all of their business
             activities, excluding both their trading-book business and their illiquid assets it they
             are deducted from own funds under paragraph 2 (d) of Annex V;
   (iv)      the capital requirements imposed in paragraph 2.
                                                                       93/6/EEC Art. 4.1 (iii) to (iv),
                                                                    second subparagraph
   Irrespective of the amount of the capital requirement referred to in (i) to (iv) the own-funds
   requirement for investment firms shall never be less than the amount prescribed in Annex IV.
                                                                       93/6/EEC Art. 4 (2) to (5)
   2. The competent authorities shall require institutions to cover the risks arising in connection
   with business that is outside the scope of both this Directive and Directive 89/647/EEC and
   considered to be similar to the risks covered by those Directives by adequate own funds.
   3. If the own funds held by an institution fall below the amount of the own funds requirement
   imposed in paragraph 1, the competent authorities shall ensure that the institution in question
   takes appropriate measures to rectify its situation as quickly as possible.
   4. The competent authorities shall require institutions to set up systems to monitor and control
   the interest-rate risk on all of their business, and those systems shall be subject to overview by
   the competent authorities.
   5. Institutions shall be required to satisfy their competent authorities that they employ systems
   which can calculate their financial positions with reasonable accuracy at any time.
                                                                       93/6/EEC Art 4(6) (adapted)
   2.       Notwithstanding ⌦ By derogation to ⌫ paragraph 1, the competent authorities may
   allow institutions to calculate the capital requirements for their trading book business in
   accordance with Directive 89/647/EEC rather than in accordance with Annexes I and II to this
   Directive provided that ⌦ Article 75(a) of Directive [2000/12/EC] and paragraphs 6, 7, 8 and
   10 of Annex II of this Directive, ⌫ rather than in accordance with Annexes I and II of this
EN                                                    30                                                EN
 ---pagebreak---    Directive, where the size of the trading book business meets the ⌦ following ⌫
   requirements set out below:
             i) (a) the trading-book business of such institutions does not normally exceed 5% of
                     their total business;
             ii) (b) their total trading-book positions do not normally exceed ECU ⌦ EUR ⌫ 15
                     million; and
             iii)(c) the trading-book business of such institutions never exceeds 6% of their total
                     business and their total trading-book positions never exceed ECU ⌦ EUR ⌫
                     20 million.
                                                                     93/6/EEC Art 4(7) (adapted)
   3.      In order to calculate the proportion that trading-book business bears to total business
   as in ⌦ points (a) and (c) of ⌫ paragraph 6 ⌦ 2 ⌫ i) and iii), the competent authorities
   may refer either to the size of the combined on- and off-balance-sheet business, to the profit
   and loss account or to the own funds of the institutions in question, or to a combination of
   those measurements. When the size of on- and off-balance-sheet business is assessed, debt
   instruments shall be valued at their market prices or their principal values, equities at their
   market prices and derivatives according to the nominal or market values of the instruments
   underlying them. Long positions and short positions shall be summed regardless of their
   signs.
                                                                     93/6/EEC Art 4(8) (adapted)
   4.      If an institution should happen for more than a short period to exceed either or both of
   the limits imposed in paragraph 6 ⌦ 2 (a) and (b)⌫ (i) and (ii) or to exceed either or both of
   the limits imposed in paragraph 6 ⌦ 2 (c) ⌫ (iii), it shall be required to meet the
   requirements imposed in Article ⌦ paragraph 1 (a) ⌫ 4 (i) rather than those of ⌦ Article
   75(a) of ⌫Directive 89/647/EEC ⌦ [2000/12/EC] ⌫ in respect of its trading-book
   business and to notify the competent authority.
                                                                    new
                                                  Article 19
   1.      For the purposes of paragraph 14 of Annex I, subject to national discretion, a 0%
   weighting can be assigned to debt securities issued by the same entities and denominated and
   funded in domestic currency.
                                                                     93/6/EEC Art 11(2) (adapted)
   2.      Notwithstanding ⌦ By derogation to ⌫ paragraphs ⌦ 13 and ⌫ 14 of Annex I,
   Member States may set a specific risk requirement for any bonds assigned a weighting of
   10% under Articles 11(2) of Directive 89/647/EEC ⌦ falling within Annex VI, Part 1,
   paragraphs 65 to 67 of Directive [2000/12/EC], ⌫ equal to half the specific risk requirement
   for a qualifying item with the same residual maturity as such a bond ⌦ , reduced in
EN                                                    31                                            EN
 ---pagebreak---    accordance with the percentages given in Annex VI, Part 1, paragraph 68 of Directive
   [2000/12/EC] ⌫ .
                                                                     new
   3.      If, as set out in paragraph 52 of Annex I, a competent authority approves a third
   country CIU as eligible, a competent authority in another Member State may make use of this
   recognition without conducting its own assessment.
                                                Article 20
   1.      Subject to paragraphs 2, 3 and 4 of this Article, and Article 34 of this Directive, the
   requirements in Article 75 of Directive [2000/12/EC] shall apply to investment firms.
   2.      By derogation to paragraph 1, competent authorities may allow investment firms that
   are not authorised to provide the investment services listed in point 3 and point 6 of Annex I,
   Section A of Directive 2004/39/EC to provide own funds which are always more than or
   equal to the higher of the following:
             (a)   the sum of the capital requirements contained in points (a) to (c) of Article 75
                   of Directive [2000/12/EC];
             (b)   the amount laid down in Article 21 of this Directive.
   3.      By derogation to paragraph 1, competent authorities may allow investment firms
   which hold initial capital as set out in Article 9, but which fall within the following categories,
   to provide own funds which are always more than or equal to the sum of the capital
   requirements calculated in accordance with the requirements contained in points (a) to (c) of
   Article 75 of Directive [2000/12/EC] and the amount prescribed in Article 21 of this
   Directive:
             (a)   investment firms that deal on own account for the purpose of fulfilling or
                   executing a client order or for the purpose of gaining entrance to a clearing and
                   settlement system or a recognised exchange when acting in an agency capacity
                   or executing a client order;
             (b)   investment firms:
                   (i)   that do not hold client money or securities;
                   (ii)  that undertake only dealing on own account;
                   (iii) that have no external customers;
                   (iv) the execution and settlement of whose transactions takes place under the
                         responsibility of a clearing institution and are guaranteed by that clearing
                         institution.
   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 [2000/12/EC].
EN                                                  32                                                 EN
 ---pagebreak---                                                                    93/6/EEC Annex IV
                                               Article 21
   Investment firms shall be required to hold own funds equivalent to one quarter of their
   preceding year's fixed overheads.
   The competent authorities may adjust that requirement in the event of a material change in a
   firm's business since the preceding year.
   Where a firm has not completed a year's business, including the day it starts up, the
   requirement shall be a quarter of the fixed overheads figure projected in its business plan
   unless an adjustment to that plan is required by the authorities.
                                                                   93/6/EEC (adapted)
   ⌦ SECTION 2 APPLICATION OF REQUIREMENTS ON A CONSOLIDATED BASIS ⌫
                                                                   new
                                               Article 22
   1.      The competent authorities required or mandated to exercise supervision of groups
   covered by Article 2 on a consolidated basis may waive, on a case by case basis, the
   application of capital requirements on a consolidated basis provided that:
            (a)   each investment firm in such a group uses the definition of own funds given in
                  Article 16;
            (b)   all investment firms in such a group fall within the categories in paragraphs 2
                  and 3 of Article 20;
            (c)   each investment firm in such a group meets the requirements imposed in
                  Articles 18 and 20 on an individual basis and at the same time deducts from its
                  own funds any contingent liability in favour of investment firms, financial
                  institutions, asset management companies and ancillary services undertakings
                  which would otherwise be consolidated;
            (d)   any financial holding company which is the parent undertaking of any
                  investment firm in such a group holds at least as much capital, defined here as
                  the sum of points (a) to (h) of Article 57 of Directive [2000/12/EC], as the sum
                  of the full book value of any holdings, subordinated claims, and instruments
                  referred to in Article 57 of Directive [2000/12/EC] in investment firms,
                  financial institutions, asset management companies and ancillary services
                  undertakings which would otherwise be consolidated, and the total amount of
                  any contingent liability in favour of investment firms, financial institutions,
EN                                                 33                                              EN
 ---pagebreak---                    asset management companies and ancillary services undertakings which would
                   otherwise be consolidated;
            Where the criteria in the first sub-paragraph are met, each investment firm shall have
            in place systems to monitor and control the sources of capital and funding of all
            financial holding companies, investment firms, financial institutions, asset
            management companies and ancillary services undertakings within the group.
   2.      By derogation to paragraph 1, competent authorities may permit financial holding
   companies which are the parent of an investment firm in such a group to use a value lower
   than the value calculated under point (d) of paragraph 1, but no lower than the sum of the
   requirements imposed in Article 18 and 20 on an individual basis to investment firms,
   financial institutions, asset management companies and ancillary services undertakings which
   would otherwise be consolidated, and the total amount of any contingent liability in favour of
   investment firms, financial institutions, asset management companies and ancillary services
   undertakings which would otherwise be consolidated. For the purposes of this paragraph the
   capital requirement for financial institutions, asset management companies and ancillary
   services undertakings is a notional capital requirement.
                                                                  93/6/EEC Art. 7(5) & (6)
                                                               (adapted)
                                               Article 23
   The competent authorities shall require investment firms in a group which has been granted
   the waiver provided for in Article 20 ⌦ 22 ⌫ to notify them of the risks which could
   undermine their financial positions, including those associated with the composition and
   sources of their capital and funding. If the competent authorities then consider that the
   financial positions of those investment firms is not adequately protected, they shall require the
   investment firms to take measures including, if necessary, limitations on the transfer of capital
   from such firms to group entities.
   Where the competent authorities waive the obligation of supervision on a consolidated basis
   provided for in ⌦ Article 22 ⌫ paragraph 4 they shall take other appropriate measures to
   monitor the risks, namely large exposures, of the whole group, including any undertakings not
   located in a Member State.
                                                                  new
   Where the competent authorities waive the obligation of supervision on a consolidated basis
   provided for in Article 22, the requirements of Title V, Chapter 5 of Directive [2000/12/EC]
   shall continue to apply on an individual basis and the requirements of Article 124 of Directive
   [2000/12/EC] shall continue to apply to the supervision of investment firms on an individual
   basis.
                                                                  93/6/EC Art. 7 (7) to (9)
   7. Member States may waive the application of the requirements imposed in Articles 4 and 5,
   on an individual or subconsolidated basis, to an institution which, as a parent undertaking, is
EN                                                 34                                                EN
 ---pagebreak---    subject to supervision on a consolidated basis, and to any subsidiary of such an institution
   which is subject to their authorization and supervision and is included in the supervision on a
   consolidated basis of the institution which is its parent company.
   The same right of waiver shall be granted where the parent undertaking is a financial holding
   company which has its head office in the same Member State as the institution, provided that
   it is subject to the same supervision as that exercised over credit institutions or investment
   firms, and in particular the requirements imposed in Articles 4 and 5.
   In both cases, if the right of waiver is exercised measures must be taken to ensure the
   satisfactory allocation of own funds within the group.
   8. Where an institution the parent undertaking of which is an institution has been authorized
   and is situated in another Member State, the competent authorities which granted that
   authorization shall apply the rules laid down in Articles 4 and 5 to that institution on a
   individual or, where appropriate, a subconsolidated basis.
   9. Notwithstanding paragraph 8, the competent authorities responsible for authorizing the
   subsidiary of a parent undertaking which is an institution may, by a bilateral agreement,
   delegate their responsibility for supervising the subsidiary's capital adequacy and large
   exposures to the competent authorities which authorized and supervise the parent undertaking.
   The Commission must be kept informed of the existence and content of such agreements. It
   shall forward such information to the competent authorities of the other Member States and to
   the Banking Advisory Committee and to the Council, except in the case of groups covered by
   paragraph 3.
                                                                  new
                                              Article 24
   By derogation to Article 2(2), competent authorities may exempt investment firms from the
   consolidated capital requirement established there, provided that all the investment firms in
   the group fall within the investment firms referred to in Article 20(2) and the group does not
   include credit institutions.
   Where the requirements of the first sub-paragraph are met, the parent investment firm shall be
   required to provide own funds which are always more than or equal to the higher of the
   following two consolidated requirements, calculated as set out in Section 3 of this Chapter:
           (a)     the sum of the capital requirements contained in points (a) to (c) of Article 75
                   of Directive [2000/12/EC];
           (b)     the amount prescribed in Article 21.
                                              Article 25
   By derogation to Article 2(2), competent authorities may exempt investment firms from the
   consolidated capital requirement established there, provided that all the investment firms in
   the group fall within the investment firms referred to in Articles 20(2) and (3), and the group
   does not include credit institutions.
EN                                                 35                                               EN
 ---pagebreak---    Where the requirements of the first sub-paragraph are met, the parent investment firm shall be
   required to provide own funds which are always more than or equal to the sum of the
   consolidated capital requirements, calculated as set out in Section 3 of this Chapter, of the
   requirements contained in points (a) to (c) of Article 75 of Directive [2000/12/EC] and the
   amount prescribed in Article 21 of this Directive.
                                                                     93/6/EEC (adapted)
                                            ⌦ SECTION 3 ⌫
       CALCULATING ⌦ CALCULATION OF ⌫ CONSOLIDATED REQUIREMENTS
                                                                     98/31/EC Art. 1.4 (adapted)
                                                 Article 26
   1.      Where the right of waiver provided for in Article 20 ⌦ 22 ⌫ is not exercised, the
   competent authorities may, for the purpose of calculating the capital requirements set out in
   Annexes I and VIII and the exposures to clients set out in ⌦ Articles 28 to 32 and ⌫ Annex
   VI on a consolidated basis, permit positions in the trading book of one institution to offset
   positions in the trading book of another institution according to the rules set out in
   ⌦ Articles 28 to 32 ⌫ Annexes I, VI and VIII.
            In addition, they may allow foreign-exchange positions in one institution to offset
            foreign-exchange positions in another institution in accordance with the rules set out
            in Annex III and/or Annex VIII. They may also allow commodities positions in one
            institution to offset commodities positions in another institution in accordance with
            the rules set out in Annex VII ⌦ IV ⌫ and/or Annex VIII.
                                                                     93/6/EEC Art 7(11) (adapted)
   2.      The competent authorities may also permit offsetting of the trading book and of the
   foreign-exchange and commodities positions, respectively, of undertakings located in third
   countries, subject to the simultaneous fulfilment of the following conditions:
            i) (a) those undertakings have been authorized in a third country and either satisfy
                    the definition of credit institution given in the first indent of Article 1
                    ⌦ 4(1) ⌫ of Directive 77/780/EEC ⌦ [2000/12/EC] ⌫ or are recognized
                    third-country investment firms;
            ii) (b) such undertakings comply, on a solo basis, with capital adequacy rules
                    equivalent to those laid down in this Directive;
            iii)(c) no regulations exist in the countries in question which might significantly
                    affect the transfer of funds within the group.
EN                                                   36                                            EN
 ---pagebreak---                                                                        93/6/EEC Art 7(12) (adapted)
   3.       The competent authorities may also allow the offsetting provided for in paragraph 10
   ⌦ 1 ⌫ between institutions within a group that have been authorized in the Member State in
   question, provided that:
             i) (a) there is a satisfactory allocation of capital within the group;
             ii) (b) the regulatory, legal or contractual framework in which the institutions operate
                     is such as to guarantee mutual financial support within the group.
                                                                       93/6/EEC Art 7(13) (adapted)
   4.       Furthermore, the competent authorities may allow the offsetting provided for in
   paragraph 10 ⌦ 1 ⌫ between institutions within a group that fulfil the conditions imposed
   in paragraph 12 ⌦ 3 ⌫ and any institution included in the same group which has been
   authorized in another Member State provided that that institution is obliged to fulfil the
   capital requirements imposed in Articles 4 and 5 ⌦ 18, 20 and 28 ⌫ on a solo ⌦ an
   individual ⌫ basis.
                                                                       93/6/EEC Art 7(14) & (15)
                                                                   (adapted)
                                                  Article 27
   1.       In the calculation of own funds on a consolidated basis Article 5 ⌦ 65 ⌫ of
   Directive 89/299/EEC ⌦ [2000/12/EC] ⌫ shall apply.
   2.       The competent authorities responsible for exercising supervision on a consolidated
   basis may recognise the validity of the specific own-funds definitions applicable to the
   institutions concerned under Chapter IV in the calculation of their consolidated own funds.
                                                                       93/6/EEC (adapted)
                                            ⌦ SECTION 4 ⌫
         ⌦ MONITORING AND CONTROL OF LARGE EXPOSURES ⌫
                                                                       93/6/EEC Art 5(1) (adapted)
                                                  Article 28
   1.       Institutions shall monitor and control their large exposures in accordance with
   Directive 92/121/EEC ⌦ Articles 106 to 118 of Directive [2000/12/EC]. ⌫
EN                                                    37                                              EN
 ---pagebreak---                                                                       98/31/EC Art. 1.3 (adapted)
   2.      ⌦ By derogation to paragraph 1, ⌫ Notwithstanding institutions which calculate the
   capital requirements for their trading-book business in accordance with Annexes I and II, and,
   as appropriate, Annex VIII, shall monitor and control their large exposures in accordance with
   Directive 92/121/EEC ⌦ Articles 106 to 118 of Directive [2000/12/EC] ⌫ subject to the
   amendments laid down in Articles 27 to 30 ⌦ 29 to 32 ⌫ of this Directive.
                                                                      new
   3.      By 31 December 2007, the Commission shall submit to the European Parliament and
   to the Council a report on the functioning of this Section, together with any appropriate
   proposals.
                                                                      93/6/EEC Annex VI (2)
                                                                   (adapted)
                                                                      new
                                                  Article 29
   1.      The exposures to individual clients which arise on the trading book shall be calculated
   by summing the following items (i), (ii) and (iii):
             i) (a) the excess — where positive — of an institution's long positions over its short
                     positions in all the financial instruments issued by the client in question,
                     ⌦ with ⌫ (the net position in each of the different instruments being
                     calculated according to the methods laid down in Annex I);
             ii) (b) the net exposure, in the case of the underwriting of a debt or an equity
                     instrument;, the institution's exposure shall be its net exposure; (which is
                     calculated by deducting those underwriting positions which are subscribed or
                     sub-underwritten by third parties on the basis of a formal agreement) reduced
                     by the factors set out in paragraph 39 of Annex I.
             iii)(c) the exposures due to the transactions, agreements and contracts referred to in
                     Annex II with the client in question, such exposures being calculated in the
                     manner laid down in that Annex, for the calculation of exposure values 
                     without application of the weightings for counterparty risk.
             ⌦ For the purposes of point (b), the net exposure is calculated by deducting those
             underwriting positions which are subscribed or sub-underwritten by third parties on
             the basis of a formal agreement reduced by the factors set out in paragraph 41 of
             Annex I. ⌫
             ⌦ For the purposes of point (b), ⌫ Ppending further coordination, the competent
             authorities shall require institutions to set up systems to monitor and control their
             underwriting exposures between the time of the initial commitment and working day
             one in the light of the nature of the risks incurred in the markets in question.
EN                                                    38                                            EN
 ---pagebreak---                For the purposes of point (c), Articles 84 to 89 of Directive [2000/12/EC] shall be
            excluded from the reference in paragraph 5 of Annex II of this Directive.
                                                                   93/6/EEC Annex VI (3)
                                                                (adapted)
   2.      Thereafter, T ⌦ 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 12.
                                                                   93/6/EEC Annex VI (4)
                                                                (adapted)
                                              Article 30
   1.      The overall exposures to individual clients or groups of connected clients shall be
   calculated by summing the exposures which arise on the trading book and the exposures
   which arise on the non-trading book, taking into account Article 4 ⌦ 112 to 117 ⌫ (6) to
   (12) of Directive 92/121/EEC ⌦ [2000/12/EC] ⌫.
            In order to calculate the exposure on the non-trading book, institutions shall take the
            exposure arising from assets which are deducted from their own funds by virtue of
            ⌦ point (d) of Article 13(2) ⌫ paragraph 2(d) of Annex V to be zero.
                                                                   93/6/EEC Annex VI (5)
                                                                (adapted)
                                                                   new
   2.      Institutions' overall exposures to individual clients and groups of connected clients
   calculated in accordance with paragraph 4 shall be reported in accordance with Article 3
   ⌦ 110 ⌫ of Directive 92/121/EEC ⌦ [2000/12/EC] ⌫.
                Other than in relation to repurchase transactions, securities or commodities
            lending or borrowing transactions, the calculation of large exposures to clients and
            groups of connected clients for reporting purposes shall not include the recognition
            of credit risk mitigation. 
                                                                   93/6/EEC Annex VI (6)
                                                                (adapted)
   3.      That ⌦ The ⌫ sum of the exposures to an individual client or group of connected
   clients ⌦ in paragraph 1 ⌫ shall be limited in accordance with Article 4 ⌦ Articles 111 to
   117 ⌫ of Directive 92/121/EEC ⌦ [2000/12/EC] ⌫ subject to the transitional provisions
   of Article 6 of the same Directive.
EN                                                39                                                EN
 ---pagebreak---                                                                     93/6/EEC Annex VI (7)
                                                                 (adapted)
   4.       ⌦ By derogation to ⌫ Notwithstanding paragraph ⌦ 3 ⌫ 6, the competent
   authorities may allow assets constituting claims and other exposures investment firms on
   recognized recognised third-country investment firms and recognized recognised clearing
   houses and exchanges in financial instruments to be subject to the same treatment accorded to
   those on institutions ⌦ laid out ⌫ in Article ⌦ Articles 113(2)(i), 115(2) and 116⌫ 4 (7)
   (i), (9) and (10) of Directive 92/121/EEC ⌦ [2000/12/EC]. ⌫
                                                                    93/6/EEC Annex VI (8)
                                                                 (adapted)
                                               Article 31
   The competent authorities may authorize the limits laid down in Article 4 ⌦ Articles 111 to
   117 ⌫ of Directive 92/121/EEC ⌦ [2000/12/EC] ⌫ to be exceeded subject to ⌦ if ⌫ the
   following conditions being met simultaneously ⌦ are met ⌫:
   1. (a)    the exposure on the non-trading book to the client or group of clients in question
             does not exceed the limits laid down in Directive 92/121/EEC ⌦ Articles 111 to 117
             of [Directive 2000/12/EC] ⌫, calculated with reference to own funds as defined
             ⌦ specified ⌫ in Directive 89/299/EEC ⌦ [2000/12/EC] ⌫, so that the excess
             arises entirely on the trading book;
   2.(b)     the ⌦ institution ⌫ firm meets an additional capital requirement on the excess in
             respect of the limits laid down in Article 4 ⌦ 111 ⌫ (1) and (2) of Directive
             92/121/EEC ⌦ [2000/12/EC], calculated in accordance with Annex VI of this
             Directive⌫;
   3.(c)     where 10 days or less has elapsed since the excess occurred, the trading-book
             exposure to the client or group of connected clients in question must not exceed
             500 % of the institution's own funds;
   4.(d)     any excesses which have persisted for more than 10 days must not, in aggregate,
             exceed 600 % of the institution's own funds;
   5 .(e)    institutions must report to the competent authorities every three months all cases
             where the limits laid down in Article 4 ⌦ 111 ⌫ (1) and (2) of Directive
             92/121/EEC ⌦ [2000/12/EC] ⌫ have been exceeded during the preceding three
             months.
   In relation to point (e), in each case in which the limits have been exceeded the amount of the
   excess and the name of the client concerned must be reported.
EN                                                 40                                              EN
 ---pagebreak---                                                                    93/6/EEC Annex VI (9) & (12)
                                                                (adapted)
                                                Article 32
   1.       The competent authorities shall establish procedures of which they shall notify the
   Council and the Commissionto prevent institutions from deliberately avoiding the additional
   capital requirements that they would otherwise incur, on exposures exceeding the limits laid
   down in Article 4 ⌦ 111 ⌫ (1) and (2) of Directive 92/121/EEC ⌦ [2000/12/EC] ⌫ once
   those exposures have been maintained for more than 10 days, by means of temporarily
   transferring the exposures in question to another company, whether within the same group or
   not, and/or by undertaking artificial transactions to close out the exposure during the 10 day
   period and create a new exposure. Institutions shall maintain systems which ensure that any
   transfer which has this effect is immediately reported to the competent authorities.
             The competent authorities shall notify ⌦ the Council and ⌫ the Commission of
             those procedures.
             Institutions shall maintain systems which ensure that any transfer which has the
             effect referred to in the first subparagraph is immediately reported to the competent
             authorities.
   2.       The competent authorities may permit those institutions which are allowed to use the
   alternative definition ⌦ determination ⌫ of own funds under paragraph 2 of Annex V
   ⌦ Article 13(2) ⌫ to use that definition ⌦ determination ⌫ for the purposes of
   paragraphs 5, 6 and 8 of this Annex ⌦ Articles 30(2), 30(3) and 31 ⌫ provided that the
   institutions concerned are required, in addition, to meet all of the obligations set out in
   Articles 3 and 4 ⌦ 110 to 117 ⌫ of Directive 92/121/EEC ⌦ [2000/12/EC] ⌫, in respect
   of the exposures which arise outside their trading books by using own funds as defined in
   Directive 89/299/EEC ⌦ [2000/12/EC] ⌫.
                                                                   93/6/EEC (adapted)
                                           ⌦ SECTION 5 ⌫
            VALUATION OF POSITIONS FOR REPORTING PURPOSES
                                                Article 33
                                                                   new
   1.       All trading book positions shall be subject to prudent valuation rules as specified in
   Annex VII, Part B. These rules shall require institutions to ensure that the value applied to
   each of its trading book positions appropriately reflects the current market value. This value
   shall contain an appropriate degree of certainty having regard to the dynamic nature of trading
EN                                                  41                                             EN
 ---pagebreak---    book positions, the demands of prudential soundness and the mode of operation and purpose
   of capital requirements in respect of trading book positions.
   2.       Positions shall be re-valued at least daily.
                                                                    93/6/EEC Art. 6 (adapted)
   1. Institutions shall mark to market their trading books on a daily basis unless they are subject
   to Article 4 (6).
   23.      In the absence of readily available market prices, for example in the case of dealing in
   new issues on the primary markets, the competent authorities may waive the requirement
   imposed in paragraphs 1 ⌦ and 2 ⌫ and ⌦ shall ⌫ require institutions to use alternative
   methods of valuation provided that those methods are sufficiently prudent and have been
   approved by competent authorities.
                                                                    93/6/EEC
                     SUPERVISION ON A CONSOLIDATED BASIS
                                                                   new
                                   SCOPE OF APPLICATION
                                                                    96/3/EEC
                                                 Article 7
                                            General principles
                                                                    98/31EC Art. 7(10) (adapted)
   10. Where the rights of waiver provided for in paragraphs 7 and 9 are not exercised, the
   competent authorities may, for the purpose of calculating the capital requirements set out in
   Annexes I and VIII and the exposures to clients set out in Annex VI on a consolidated basis,
   permit positions in the trading book of one institution to offset positions in the trading book of
   another institution according to the rules set out in Annexes I, VI and VIII.
   In addition, they may allow foreign-exchange positions in one institution to offset foreign-
   exchange positions in another institution in accordance with the rules set out in Annex III
   and/or Annex VIII. They may also allow commodities positions in one institution to offset
   commodities positions in another institution in accordance with the rules set out in Annex VII
   and/or Annex VIII.
EN                                                  42                                                EN
 ---pagebreak---                                                                    new
                                              SECTION 6
                        RISK MANAGEMENT AND CAPITAL ASSESSMENT
                                               Article 34
   Competent authorities shall require that every investment firm, as well as meeting the
   requirements in Article 13 of Directive 2004/39/EC, shall meet the requirements in Articles
   22 and 123 of Directive [2000/12/EC].
                                                                   93/6/EEC (adapted)
                                         ⌦ SECTION 7 ⌫
                               REPORTING REQUIREMENTS
                                                                   93/6/EEC Art. 8 (adapted)
                                               Article 35
   1.      Member States shall require that investment firms and credit institutions provide the
   competent authorities of their home Member States with all the information necessary for the
   assessment of their compliance with the rules adopted in accordance with this Directive.
   Member States shall also ensure that institutions'internal control mechanisms and
   administrative and accounting procedures ⌦ of the institutions ⌫ permit the verification of
   their compliance with such rules at all times.
   2.      Investment firms shall be obliged toreport 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(3)
   ⌦ 9 ⌫ , at least once every three months in the case of firms covered by Article 3 ⌦ 5 ⌫
   (1) and at least once every six months in the case of firms covered by Article 3 ⌦ 5 ⌫ (2).
   3.      Notwithstanding paragraph 2, investment firms covered by Articles 3 ⌦ 5 ⌫ (1) and
   (3) ⌦ 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 89/647/EEC
   ⌦ [2000/12/EC] ⌫.
EN                                                 43                                              EN
 ---pagebreak---                                                                     98/31/EC Art. 1.5
   5.      The competent authorities shall oblige institutions to report to them immediately any
   case in which their counter-parties in repurchase and reverse repurchase agreements or
   securities and commodities-lending and securities and commodities-borrowing transactions
   default on their obligations. Commission shall report to the Council on such cases and their
   implications for the treatment of such agreements and transactions in this Directive not more
   than three years after the date referred to in Article 12. Such report shall also describe the way
   that institutions meet those of conditions (i) to (v) in Article 2(6)(b) that apply to them, in
   particular condition (v). Furthermore it shall give details of any changes in the relative
   volume of institutions' traditional lending and their lending through reverse repurchase
   agreements and securities-borrowing or commodities-borrowing transactions. If the
   Commission concludes on the basis of this report and other information that further
   safeguards are needed to prevent abuse, it shall make appropriate proposals.
                                                                    93/6/EEC (adapted)
                                       ⌦ Chapter VI ⌫
                                        ⌦ SECTION 1 ⌫
                                COMPETENT AUTHORITIES
                                                                    93/6/EEC Art. 9 (adapted)
                                                Article 36
   1.      Member States shall designate the authorities which are ⌦ competent ⌫ to carry out
   the duties provided for in this Directive. They shall inform the Commission thereof,
   indicating any division of duties.
   2.      The ⌦ competent ⌫ authorities referred to in paragraph 1 must ⌦ 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 concerned must ⌦ shall ⌫ be granted all the
   powers necessary for the performance of their tasks, and in particular that of overseeing the
   constitution of trading books.
   1.        4. The competent authorities of the various Member States shall collaborate closely
             in the performance of the duties provided for in this Directive, particularly when
             investment services are provided on a services basis or through the establishment of
             branches in one or more Member States. They shall on request supply one another
             with all information likely to facilitate the supervision of the capital adequacy of
             investment firms and credit institutions, in particular the verification of their
             compliance with the rules laid down in this Directive. Any exchange of information
EN                                                  44                                                EN
 ---pagebreak---              between competent authorities which is provided for in this Directive in respect of
             investment firms shall be subject to the obligation of professional secrecy imposed in
             Article 25 of Directive 93/22/EEC and, as regards credit institutions, to the
             obligation imposed in Article 12 of Directive 77/780/EEC, as amended by Directive
             89/646/EEC.
                                                                     new
                                               SECTION 2
                                              SUPERVISION
                                                 Article 37
   1.      Articles 124 to 132, 136 and 144 of Directive [2000/12/EC] shall apply mutatis
   mutandis to the supervision of investment firms in accordance with the following:.
             (a)    references to Article 6 of Directive [2000/12/EC] shall be construed as
                    references to Article 5 of Directive 2004/39/EC;
             (b)    references to Article 22 and 123 of Directive [2000/12/EC] shall be construed
                    as references to Article 34 of this Directive;
             (c)    references to Articles 44 to 52 of Directive [2000/12/EC] shall be read as
                    references to Articles 54 and 58 of Directive 2004/39/EC.
             Where an EU parent financial holding company has as subsidiary both a credit
             institution and an investment firm, one competent authority responsible for
             supervision of the credit institution shall be identified to be responsible for
             consolidated supervision of the entities controlled by that parent.
   2.      The requirements set out in Article 129(2) of Directive [2000/12/EC] shall also apply
   to the recognition of internal models of institutions under Annex V of this Directive.
             The period for the recognition referred to in the first sub-paragraph shall be six
             months.
                                                                     93/6/EEC Art. 9 (4) (adapted)
                                                 Article 38
   1.      The       competent     authorities    of     the    various   Member      States    shall
   ⌦ cooperate ⌫collaborate closely in the performance of the duties provided for in this
   Directive, particularly when ⌦ where ⌫investment services are provided on a services basis
   or through the establishment of branches in one or more Member States.
EN                                                   45                                               EN
 ---pagebreak---             They shall on request supply one another with all information likely to facilitate the
            supervision of the capital adequacy of investment firms and credit institutions, in
            particular the verification of their compliance with the rules laid down in this
            Directive.
   2.      Any exchange of information between competent authorities which is provided for in
   this Directive in respect of investment firms shall be subject to the ⌦ following ⌫
   obligation ⌦ s ⌫ of professional secrecy ⌦ : ⌫
            (a)   ⌦ for investment firms, those ⌫ imposed in Article 25 ⌦ 54 and 58 ⌫ of
                  Directive 93/22/EEC ⌦ 2004/39/EC ⌫;
            (b)   and, as regards⌦ for ⌫ credit institutions, to the obligation ⌦ those ⌫
                  imposed in Articles ⌦ 44 to 52 ⌫ 12 of Directive 77/780/EEC, as amended
                  by Directive 89/646/EEC ⌦of Directive [2000/12/EC] ⌫ .
                                                                 new
                                           Chapter VII
                                            Disclosure
                                              Article 39
   The requirements set out in Title V, Chapter 5 of Directive [2000/12/EC] shall apply to
   investment firms.
                                                                 93/6/EEC (adapted)
                                    ⌦ Chapter VIII ⌫
                                       ⌦ SECTION 1 ⌫
                                                                 new
                                              Article 40
   For the purposes of the calculation of minimum capital requirements for counterparty risk
   under this directive, and for credit risk under Directive [2000/12/EC], and without prejudice
   to the provisions of the second to sixth paragraphs of Annex III of Directive [2000/12/EC],
   exposures to recognized third-country investment firms and exposures incurred to recognized
   clearing houses and exchanges shall be treated as exposures to institutions.
EN                                                46                                               EN
 ---pagebreak---                                                   Article 41
   By 31 December 2008, the Commission shall examine and, if necessary, revise the treatment
   of counterparty risk set out in Annex II.
                                                                      93/6/EEC (adapted)
                                          ⌦ SECTION 2 ⌫
                                    ⌦POWERS OF EXECUTION⌫
                                                                      93/6/EEC Art. 10 (adapted)
                                                                      new
                                                  Article 42
   1.      Pending adoption of a further Directive laying down provisions for adapting this
   Directive to technical progress in the areas specified below, the Council shall, acting by
   qualified majority on a proposal form the Commission, in accordance with Decision
   87/373/EEC, adopt those adaptations which may be necessary as follows ⌦The Commission
   shall decide on any amendments in the following areas in accordance with the procedure
   referred to in Article 43(2). ⌫
            (a)     clarification of the definitions in Article 2 ⌦ 3 ⌫ in order to ensure uniform
                    application of this Directive throughout the Community;
            (b)     clarification of the definitions in Article 2 ⌦ 3 ⌫ to take account of
                    developments on financial markets;
            (c)     alteration of the amounts of initial capital prescribed in Articles 3 ⌦ 5 to 9 ⌫
                    and the amount referred to in Article 4(6) ⌦18(2)⌫ to take account of
                    developments in the economic and monetary field;
                (d) amendment of the categories of investment firms in Articles 20(2) and (3) to
                    take account of developments on financial markets; 
                (e) clarification of the requirement laid down in Article 21 to ensure uniform
                    application of this Directive throughout the Community; 
            (f)     the alignment of terminology on and the framing of definitions in accordance
                    with subsequent acts on institutions and related matters.;
                (g) amendment of the technical provisions in Annexes I to VII in order to take
                    account of developments in financial markets, risk measurement, accounting
                    standards or requirements set out in Community legislation. 
EN                                                    47                                             EN
 ---pagebreak---                                                                     new
                                                Article 43
   1.      The Commission shall be assisted by a Committee.
   2.      Where reference is made to this paragraph, the procedure laid down in Article 5 of
   Decision 1999/468/EC shall apply, in compliance with Article 7(3) and Article 8 thereof.
            The period provided for in Article 5(6) of Decision 1999/468/EC shall be three
            months.
                                                                     93/6/EEC (adapted)
                                        ⌦ SECTION 3 ⌫
                               TRANSITIONAL PROVISIONS
                                                                     93/6/EEC Art. 11
                                                Article 11
   1. Member States may authorize investment firms subject to Article 30 (1) of Directive
   93/22/EEC the own funds of which are on the day of the application of this Directive lower
   than the levels specified in Article 3 (1) to (3) of this Directive. Thereafter, however, the own
   funds of such investment firms must fulfil the conditions laid down in Article 3 (5) to (8) of
   this Directive.
   2. Notwithstanding paragraph 14 of Annex I, Member States may set a specific-risk
   requirement for any bonds assigned a weighting of 10 % under Article 11 (2) of Directive
   89/647/EEC equal to half the specific-risk requirement for a qualifying item with the same
   residual maturity as such a bond.
                                                                     98/31/EC Art. 1.6 (adapted)
                                                Article 1
   Until 31 December 2006, Member States may authorise their institutions to use the minimum
   spread, carry and outright rates set out in the following table instead of those indicated in
   paragraphs 13, 14, 17 and 18 of Annex VII provided that the institutions, in the opinion of
   their competent authorities:
   (i)      undertake significant commodities business,
   (ii)     have a diversified commodities portfolio, and
EN                                                  48                                               EN
 ---pagebreak---    (iii)     are not yet in a position to use internal models for the purpose of calculating the
             capital requirement on commodities risk in accordance with Annex VIII.
                                                 Table
                       Precious metals       Base           Agricultural         Other, including
                        (except gold)        metals       products (softs)       energy products
           Spread 1.0                      1.2         1.5                    1.5
          rate (%)
             Carry 0.3                     0.5         0.6                    0.6
          rate (%)
         Outright 8                        10          12                     15
          rate (%)
   Member States shall inform the Commission of the use they make of this Article.
                                                                  new
                                               Article 44
   Article 152(1) to (6) of Directive [2000/12/EC] shall apply, in accordance with Article 2 and
   Chapter V, Sections 2 and 3 of this Directive, to investment firms calculating risk-weighted
   exposure amounts, for the purposes of Annex II of this Directive, in accordance with Articles
   84 to 89 of Directive [2000/12/EC], or using the Advanced Measurement Approach as
   specified in Article 105 of that Directive for the calculation of their capital requirements for
   operational risk.
                                               Article 45
   Until 31 December 2012, for investment firms the relevant indicator for the trading and sales
   business line of which represents at least 50% of the total of relevant indicators for all of its
   business lines calculated in accordance with Article 20 of this Directive and Annex X, Part 2,
   paragraphs 1 to 8 of Directive [2000/12/EC], Member States may apply a percentage of 15%
   to the business line “trading and sales”.
EN                                                 49                                                EN
 ---pagebreak---                                                                    93/6/EEC Art. 12 (adapted)
                                                                   new
                                        ⌦ SECTION 4 ⌫
                                      FINAL PROVISIONS
                                               Article 46
   1.      Member States shall bring into force the laws, regulations and administrative
   provisions necessary for them to comply with this Directive by the date fixed in the second
   paragraph of Article 31 of Directive 93/22/EEC. They shall forthwith inform the Commission
   thereof.
   1.      Member States shall adopt and publish, by 31 December 2006 at the latest, the laws,
   regulations and administrative provisions necessary to comply with Articles 2, 3, 11, 13, 17,
   18, 19, 20, 22, 23, 24, 25, 29, 30, 33, 34, 35, 37, 39, 40, 42, 44, 45, 47 and the Annexes I, II,
   III, V, VII. They shall forthwith communicate to the Commission the text of those provisions
   and a correlation table between those provisions and this Directive.
            They shall apply those provisions from 31 December 2006.
            When Member States adopt those provisions, they shall contain a reference to this
            Directive or add such a reference ⌦ be accompanied by such a reference⌫ on the
            occasion of their official publication. ⌦ They shall also include a statement that
            references in existing laws, regulations and administrative provisions to these
            directives repealed by this Directive shall be construed as references to this
            Directive. ⌫ The manner in which such references are to be made shall be laid
            down by the Member State.
   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.
                                                                   new
                                               Article 47
   1.      Article 152(7) to (12) of Directive [2000/12/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(7) of Directive [2000/12/EC] is exercised:
            (a)   References in Annex II paragraph 6 of Directive [2000/12/EC] shall be read as
                  references to Directive 2000/12/EC as that Directive stood prior to the date
                  referred to in Article 46;
            (b)   Annex II, paragraph 4.1, shall apply as it stood prior to the date referred to in
                  Article 46.
EN                                                 50                                                EN
 ---pagebreak---    2.      Article 157 (2) of Directive [2000/12/EC] shall apply mutatis mutandis for the
   purposes of Articles 18 and 20.
                                                                   93/6/EEC Art. 13
                                              Article 13
   The Commission shall as soon as possible submit to the Council proposals for capital
   requirements in respect of commodities trading, commodity derivatives and units of
   collective-investment undertakings.
   The Council shall decide on the Commission's proposals no later than six months before the
   date of application of this Directive.
                                                                  new
                                              Article 48
   Directive 93/6/EEC, as amended by the Directives listed in Annex VIII, Part A, is repealed
   without prejudice to the obligations of the Member States relating to the time-limits for
   transposition into national law of the Directives set out in Annex VIII, Part B.
   References to the repealed Directives shall be construed as references to this Directive and
   shall be read in accordance with the correlation table in Annex IX.
                                              Article 49
   This Directive shall enter into force on the twentieth day following that of its publication in
   the Official Journal of the European Union.
                                                                   93/6/EEC Art 14
                                        REVIEW CLAUSE
                                              Article 14
   Within three years of the date referred to in Article 12, acting on a proposal from the
   Commission, the Council shall examine and, if necessary, revise this Directive in the light of
   the experience acquired in applying it, taking into account market innovation and, in
   particular, developments in international fora of regulatory authorities.
EN                                                51                                               EN
 ---pagebreak---                                                                    93/6/EEC Art. 15
                                               Article 50
   This Directive is addressed to the Member States.
   Done at Brussels, […]
   For the European Parliament                    For the Council
   The President                                  The President
   […]                                            […]
                                                                   93/6/EEC (adapted)
                                                                   new
                                               ANNEX I
             CALCULATING CAPITAL REQUIREMENTS FOR  POSITION RISK
   INTRODUCTION ⌦ GENERAL PROVISIONS ⌫
   Netting
   1. The excess of an institution's long (short) positions over its short (long) positions in the
   same equity, debt and convertible issues and identical financial futures, options, warrants and
   covered warrants shall be its net position in each of those different instruments. In calculating
   the net position the competent authorities shall allow positions in derivative instruments to be
   treated, as laid down in paragraphs 4 to 7, as positions in the underlying (or notional) security
   or securities. Institutions' holdings of their own debt instruments shall be disregarded in
   calculating specific risk under paragraph 14 ⌦ 14 ⌫ .
   2. No netting shall be allowed between a convertible and an offsetting position in the
   instrument underlying it, unless the competent authorities adopt an approach under which the
   likelihood of a particular convertible's being converted is taken into account or have a capital
   requirement to cover any loss which conversion might entail.
   3. All net positions, irrespective of their signs, must be converted on a daily basis into the
   institution's reporting currency at the prevailing spot exchange rate before their aggregation.
   Particular instruments
                                                                   93/6/EC (adapted)
                                                                   1 98/31/EC Art. 1.7 and Annex
                                                                .1(a)
   4. Interest-rate futures, forward-rate agreements (FRAs) and forward commitments to buy or
   sell debt instruments shall be treated as combinations of long and short positions. Thus a long
EN                                                  52                                               EN
 ---pagebreak---    interest-rate futures position shall be treated as a combination of a borrowing maturing on the
   delivery date of the futures contract and a holding of an asset with maturity date equal to that
   of the instrument or notional position underlying the futures contract in question. Similarly a
   sold FRA will be treated as a long position with a maturity date equal to the settlement date
   plus the contract period, and a short position with maturity equal to the settlement date. Both
   the borrowing and the asset holding shall be included in the central government column
   ⌦ first category set out in ⌫ of Table 1 in paragraph 14 ⌦ 14 ⌫ in order to calculate the
   capital required against specific risk for interest-rate futures and FRAs. A forward
   commitment to buy a debt instrument shall be treated as a combination of a borrowing
   maturing on the delivery date and a long (spot) position in the debt instrument itself. The
   borrowing shall be included in the central government column ⌦ first category set out in ⌫
   of Table 1 ⌦ in paragraph 14 ⌫for purposes of specific risk, and the debt instrument under
   whichever column is appropriate for it in the same table. 1 --- 
                                                                      98/31/EC Art. 1.7 and Annex
                                                                   .1(a) (adapted)
   The competent authorities may allow the capital requirement for an exchange-traded future to
   be equal to the margin required by the exchange if they are fully satisfied that it provides an
   accurate measure of the risk associated with the future and that it is at least equal to the capital
   requirement for a future that would result from a calculation made using the method set out in
   this Annex or applying the internal models method described in Annex VIII.
   Until 31 December 2006 tThe competent authorities may also allow the capital requirement
   for an OTC derivatives contract of the type referred to in this paragraph cleared by a clearing
   house recognised by them to be equal to the margin required by the clearing house if they are
   fully satisfied that it provides an accurate measure of the risk associated with the derivatives
   contract and that it is at least equal to the capital requirement for the contract in question that
   would result from a calculation made using the method set out in the this Annex or applying
   the internal models method described in Annex VIII.
                                                                      93/6/EEC Art. 2(22)
   For the purposes of this paragraph, long position means a position in which an institution has
   fixed the interest rate it will receive at some time in the future, and short position means a
   position in which it has fixed the interest rate it will pay at some time in the future.
                                                                      93/6/EEC
   5. Options on interest rates, debt instruments, equities, equity indices, financial futures, swaps
   and foreign currencies shall be treated as if they were positions equal in value to the amount
   of the underlying instrument to which the option refers, multiplied by its delta for the
   purposes of this Annex. The latter positions may be netted off against any offsetting positions
   in the identical underlying securities or derivatives. The delta used shall be that of the
   exchange concerned, that calculated by the competent authorities or, where that is not
   available or for OTC-options, that, calculated by the institution itself, subject to the competent
   authorities' being satisfied that the model used by the institution is reasonable.
   However, the competent authorities may also prescribe that institutions calculate their deltas
   using a methodology specified by the competent authorities.
EN                                                  53                                                  EN
 ---pagebreak---                                                                      98/31/EC Art. 1.7 and Annex
                                                                  .1(b) (adapted)
   The competent authorities shall require that the oOther risks, apart from the delta risk,
   associated with options are ⌦ shall be ⌫ safeguarded against. The competent authorities
   may allow the requirement against a written exchange-traded option to be equal to the margin
   required by the exchange if they are fully satisfied that it provides an accurate measure of the
   risk associated with the option and that it is at least equal to the capital requirement against an
   option that would result from a calculation made using the method set out in the remainder of
   this Annex or applying the internal models method described in Annex VIII. Until 31
   December 2006 tThe competent authorities may also allow the capital requirement for an
   OTC option cleared by a clearing house recognised by them to be equal to the margin
   required by the clearing house if they are fully satisfied that it provides an accurate measure
   of the risk associated with the option and that it is at least equal to the capital requirement for
   an OTC option that would result from a calculation made using the method set out in the
   remainder of this Annex or applying the internal models method described in Annex VIII. In
   addition they may allow the requirement on a bought exchange-traded or OTC option to be
   the same as that for the instrument underlying it, subject to the constraint that the resulting
   requirement does not exceed the market value of the option. The requirement against a written
   OTC option shall be set in relation to the instrument underlying it.
                                                                     98/31/EC Art. 1.7 and Annex
                                                                  .1(c)
   6. Warrants relating to debt instruments and equities shall be treated in the same way as
   options under paragraph 5.
                                                                     93/6/EEC
   7. Swaps shall be treated for interest-rate risk purposes on the same basis as on-balance-sheet
   instruments. Thus an interest-rate swap under which an institution receives floating-rate
   interest and pays fixed-rate interest shall be treated as equivalent to a long position in a
   floating-rate instrument of maturity equivalent to the period until the next interest fixing and a
   short position in a fixed-rate instrument with the same maturity as the swap itself.
                                                                     new
   8. For credit derivatives, unless specified differently, the notional amount of the credit
   derivative contract must be used. When calculating the capital requirement for the market risk
   of the party who assumes the credit risk (the “protection seller”), positions are determined as
   follows:
   A total return swap creates a long position in the general market risk of the reference
   obligation and a short position in the general market risk of a government bond which is
   assigned a 0% risk weight under Annex VI of Directive [2000/12/EC]. It also creates a long
   position in the specific risk of the reference obligation.
   A credit default swap does not create a position for general market risk. For the purposes of
   specific risk, the institution must record a synthetic long position in an obligation of the
EN                                                  54                                                 EN
 ---pagebreak---    reference entity. If premium or interest payments are due under the product, these cash flows
   must be represented as notional positions in a government bond with the appropriate fixed or
   floating rate.
   A credit linked note creates a long position in the general market risk of the note itself, as an
   interest product. For the purpose of specific risk, a synthetic long position is created in an
   obligation of the reference entity. In addition, a long position is created in the specific risk of
   the issuer of the note.
   A first-asset-to-default basket creates a position for the notional amount in an obligation of
   each reference entity. If the size of the maximum credit event payment is lower than the
   capital requirement under the method in the first sentence of this sub-paragraph, the
   maximum payment amount may be taken as the capital requirement for specific risk.
   A second-asset-to-default basked product creates a position for the notional amount in an
   obligation of each reference entity less one (that with the lowest specific risk capital
   requirement). If the size of the maximum credit event payment is lower than the capital
   requirement under the method in the first sentence of this sub-paragraph, this amount may be
   taken as the capital requirement for specific risk.
   Where a credit linked note basket product has an external rating and meets the conditions for
   a qualifying debt item, a single long position with the specific risk of the note issuer may be
   recorded instead of the specific risk positions for all reference entities.
   A basket product providing proportional protection creates a position in each reference entity
   for the purposes of specific risk, with the total notional amount of the contract assigned across
   the positions according to the proportion of the total notional amount that each exposure to a
   reference entity represents. Where more than one obligation of a reference entity can be
   selected, the obligation with the highest risk weighting determines the specific risk. The
   maturity of the credit derivative contract is applicable instead of the maturity of the
   obligation.
   For the party who transfers credit risk (the “protection buyer”), the positions are determined
   as the mirror image of the protection seller, with the exception of a credit linked note (which
   entails no short position in the issuer). If at a given moment there is a call option in
   combination with a step-up, such moment is treated as the maturity of the protection. In the
   case of the nth to default credit derivatives, protection buyers are allowed to off-set specific
   risk for n-1 of the underlyings (i.e., the n-1 assets with the lowest specific risk charge).
                                                                     93/6/EEC (adapted)
   89. However, iInstitutions which mark to market and manage the interest-rate risk on the
   derivative instruments covered in paragraphs 4 to 7 on a discounted-cash-flow basis may use
   sensitivity models to calculate the positions referred to above and may use them for any bond
   which is amortizsed over its residual life rather than via one final repayment of principal.
   Both the model and its use by the institution must be approved by the competent authorities.
   These models should generate positions which have the same sensitivity to interest-rate
   changes as the underlying cash flows. This sensitivity must be assessed with reference to
   independent movements in sample rates across the yield curve, with at least one sensitivity
   point in each of the maturity bands set out in Table 2 of paragraph 18 ⌦ 20 ⌫ . The
EN                                                  55                                                 EN
 ---pagebreak---    positions shall be included in the calculation of capital requirements according to the
   provisions laid down in paragraphs 15 to 30 ⌦ 17 to 32 ⌫ .
   910. Institutions which do not use models under paragraph 8 ⌦ 9 ⌫may instead, with the
   approval of the competent authorities, treat as fully offsetting any positions in derivative
   instruments covered in paragraphs 4 to 7 which meet the following conditions at least:
            (ia) the positions are of the same value and denominated in the same currency;
            (iib) the reference rate (for floating-rate positions) or coupon (for fixed-rate
                   positions) is closely matched;
            (iiic) the next interest-fixing date or, for fixed coupon positions, residual maturity
                   corresponds with the following limits:
                   (i)   less than one month hence: same day,;
                   (ii)  between one month and one year hence: within seven days,;
                   (iii) over one year hence: within 30 days.
   1011. The transferor of securities or guaranteed rights relating to title to securities in a
   repurchase agreement and the lender of securities in a securities lending shall include these
   securities in the calculation of its capital requirement under this Annex provided that such
   securities meet the criteria laid down in Article 2(6)(a) ⌦ 11 ⌫ .
                                                                  93/6/EEC (adapted)
   11. Positions in units of collective-investment undertakings shall be subject to the capital
   requirements of Directive 89/647/EEC rather than to position-risk requirements under this
   Annex.
   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.     The institution shall classify its nNet 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.
EN                                                 56                                                EN
 ---pagebreak---    Specific risk
                                                                     93/6/EC
                                                                     new
   14. The institution shall assign its net positions, as calculated in accordance with paragraph 1,
   to the appropriate categories in Table 1 on the basis of their residual maturities and then
   multiply them by the weightings shown. It shall sum its weighted positions (regardless of
   whether they are long or short) in order to calculate its capital requirement against specific
   risk. in the trading book, as calculated in accordance with paragraph 1 to the appropriate
   categories in Table 1 on the basis of their issuer/obligor, external or internal credit
   assessment, and residual maturity, and then multiply them by the weightings shown. It shall
   sum its weighted positions (regardless of whether they are long or short) in order to calculate
   its capital requirement against specific risk. 
                                                                     93/6/EEC
   Table 1
    Central government                            Qualifying items                      Other items
            items
                                Up to 6         Over 6 and up to 24          Over 24
                                months                 months                months
   0,00 %                   0,25 %            1,00 %                     1,60 %         8,00 %
                                                                     new
   Table 1
   Items                                               Specific risk capital charge
   Debt securities issued or guaranteed by 0%
   central governments, issued by central banks,
   international     organisations,     multilateral
   development banks or Member States’
   regional government or local authorities
   which would receive a 0% risk weighting
   under the RSA or IRB approaches.
   Debt securities issued or guaranteed by             0.25% (residual term to final maturity six
   central governments, issued by central banks,       months or less)
   international     organisations,     multilateral
   development banks or Member States’                 1.00% (residual term to final maturity greater
   regional governments or local authorities           than six months and up to and including 24
   which would receive a 20% or 50% risk               months)
   weighting under the RSA
   Other    qualifying   items    as   defined    in 1.60% (residual term to maturity exceeding
EN                                                  57                                                EN
 ---pagebreak---    paragraph 15 below                                   24 months)
   All others                                           8.00%
   15.     For the purposes of paragraph 14 qualifying items shall include:
             (a)   long and short positions in assets qualifying for a credit quality step
                   corresponding at least to investment grade in the mapping process described in
                   Title V, Chapter 2, Section 3, Sub-section 1 of Directive [2000/12/EC];
             (b)   long and short positions in assets which, because of the solvency of the issuer,
                   have a PD which is not higher than that of the assets referred to under a) above,
                   under the approach described in Title V, Chapter 2, Section 3, Sub-section 2 of
                   Directive [2000/12/EC];
             (c)   long and short positions in assets for which a credit assessment by a nominated
                   external credit assessment institution is not available and which meet the
                   following conditions:
                   (i)    they are considered by the institutions concerned to be sufficiently liquid;
                   (ii)   their investment quality is, according to the institution’s own discretion,
                          at least equivalent to that of the assets referred to under point a);
                   (iii) they are listed on at least one regulated market in a Member State or on a
                          stock exchange in a third country provided that the exchange is
                          recognised by the competent authorities of the relevant Member State;
             (d)   they are, subject to competent authorities discretion, long and short positions in
                   assets issued by institutions subject to the capital adequacy requirements set
                   forth in Directive [2000/12/EC]
   The manner in which the debt instruments are assessed shall be subject to scrutiny by the
   competent authorities, which shall overturn the judgment of the institution if they consider
   that the instruments concerned are subject to too high a degree of specific risk to be qualifying
   items;
   16. The competent authorities shall require the institution to apply the maximum weighting
   shown in Table 1 to instruments that show a particular risk because of the insufficient
   solvency of the issuer of liquidity.
                                                                       93/6/EEC
   General risk
   (a) Maturity-based
                                                                       93/6/EEC (adapted)
   1517. The procedure for calculating capital requirements against general risk involves two
   basic steps. First, all positions shall be weighted according to maturity (as explained in
EN                                                    58                                               EN
 ---pagebreak---    paragraph 16 ⌦ 18 ⌫ ), in order to compute the amount of capital required against them.
   Second, allowance shall be made for this requirement to be reduced when a weighted position
   is held alongside an opposite weighted position within the same maturity band. A reduction in
   the requirement shall also be allowed when the opposite weighted positions fall into different
   maturity bands, with the size of this reduction depending both on whether the two positions
   fall into the same zone, or not, and on the particular zones they fall into. There are three zones
   (groups of maturity bands) altogether.
   1618. The institution shall assign its net positions to the appropriate maturity bands in column
   2 or 3, as appropriate, in Table 2 appearing in paragraph 18 ⌦ 20 ⌫ . It shall do so on the
   basis of residual maturity in the case of fixed-rate instruments and on the basis of the period
   until the interest rate is next set in the case of instruments on which the interest rate is variable
   before final maturity. It shall also distinguish between debt instruments with a coupon of 3 %
   or more and those with a coupon of less than 3 % and thus allocate them to column 2 or
   column 3 in Table 2. It shall then multiply each of them by the weighing for the maturity band
   in question in column 4 in Table 2.
                                                                     93/6/EEC
   1719. It shall then work out the sum of the weighted long positions and the sum of the
   weighted short positions in each maturity band. The amount of the former which are matched
   by the latter in a given maturity band shall be the matched weighted position in that band,
   while the residual long or short position shall be the unmatched weighted position for the
   same band. The total of the matched weighted positions in all bands then be calculated.
   1820. The institution shall compute the totals of the unmatched weighted long positions for
   the bands included in each of the zones in Table 2 in order to derive the unmatched weighted
   long position for each zone. Similarly the sum of the unmatched weighted short positions for
   each band in a particular zone shall be summed to compute the unmatched weighted short
   position for that zone. That part of the unmatched weighted long position for a given zone that
   is matched by the unmatched weighted short position for the same zone shall be the matched
   weighted position for that zone. That part of the unmatched weighted long or unmatched
   weighted short position for a zone that cannot be thus matched shall be the unmatched
   weighted position for that zone.
   Table 2
    Zone                    Maturity band                   Weighting (in     Assumed interest rate
                                                                  %)               change (in %)
              Coupon of 3 % or         Coupon of less
                     more                  than 3 %
   One        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
   Two        > 1 ≤ 2 years         > 1,0 ≤ 1,9 years                 1.25                          0.90
EN                                                    59                                                 EN
 ---pagebreak---              > 2 ≤ 3 years         > 1,9 ≤ 2,8 years                1.75                    0.80
             > 3 ≤ 4 years         > 2,8 ≤ 3,6 years                2.25                    0.75
   Three     > 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                    6.00                    0.60
                                   years
                                   > 12,0 ≤ 20,0                    8.00                    0.60
                                   years
                                   > 20 years                      12.50                    0.60
                                                                   93/6/EC (adapted)
   1921. The amount of the unmatched weighted long (short) position in zone one which is
   matched by the unmatched weighted short (long) position in zone two shall then be computed.
   This shall be referred to in paragraph 23 ⌦ 25⌫ as the matched weighted position between
   zones one and two. The same calculation shall then be undertaken with regard to that part of
   the unmatched weighted position in zone two which is left over and the unmatched weighted
   position in zone three in order to calculate the matched weighted position between zones two
   and three.
   2022. The institution may, if it wishes, reverse the order in paragraph 19 ⌦ 21 ⌫ so as to
   calculate the matched weighted position between zones two and three before working out that
   between zones one and two.
                                                                   93/6/EEC (adapted)
   2123. The remainder of the unmatched weighted position in zone one shall then be matched
   with what remains of that for zone three after the latter's matching with zone two in order to
   derive the matched weighted position between zones one and three.
   2224. Residual positions, following the three separate matching calculations in paragraphs 19,
   20 and 21 ⌦ 21, 22 and 23, ⌫ shall be summed.
   2325. The institution's capital requirement shall be calculated as the sum of:
   (a)      10 % of the sum of the matched weighted positions in all maturity bands;
   (b)      40 % of the matched weighted position in zone one;
EN                                                 60                                             EN
 ---pagebreak---    (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 paragraph 19 ⌦ 21 ⌫ );
   (f)       150 % of the matched weighted position between zones one and three;
   (g)       100 % of the residual unmatched weighted positions.
   (b) Duration-based
   2426. The competent authorities in a Member State may allow institutions in general or on an
   individual basis to use a system for calculating the capital requirement for the general risk on
   traded debt instruments which reflects duration instead of the system set out in paragraphs 15
   to 23 ⌦ 17 to 25 ⌫ , provided that the institution does so on a consistent basis.
                                                                         93/6/EC (adapted)
   2527. Under such a system ⌦ referred to in paragraph 26 ⌫ the institution shall take the
   market value of each fixed-rate debt instrument and thence calculate its yield to maturity,
   which is implied discount rate for that instrument. In the case of floating-rate instruments, the
   institution shall take the market value of each instrument and thence calculate its yield on the
   assumption that the principal is due when the interest rate can next be changed.
                                                                         93/6/EEC
   2628. The institution shall then calculate the modified duration of each debt instrument on the
   basis of the following formula: modified duration = ((duration (D))/(1 + r)), where:
                              D      =      ((∑t = 1m((t Ct)/((1 + r)t)))/(∑t =
                                             m               t
                                            1 ((Ct)/((1 + r) ))))
                           where:
                           R       =     yield to maturity (see paragraph 25),
                           Ct      =     cash payment in time t,
                           M      =      total maturity (see paragraph 25).
   2729. The institution shall then allocate each debt instrument to the appropriate zone in Table
   3. It shall do so on the basis of the modified duration of each instrument.
   Table 3
                Zone           Modified duration                      Assumed interest
EN                                                    61                                             EN
 ---pagebreak---                                    (in years)                     (change in %)
               One      > 0 ≤ 1,0                                                      1.0
               Two      > 1,0 ≤ 3,6                                                  0.85
               Three    > 3,6                                                          0.7
   2830. The institution shall then calculate the duration-weighted position for each instrument
   by multiplying its market price by its modified duration and by the assumed interest-rate
   change for an instrument with that particular modified duration (see column 3 in Table 3).
   2931. The institution shall work out its duration-weighted long and its duration-weighted
   short positions within each zone. The amount of the former which are matched by the latter
   within each zone shall be the matched duration-weighted position for that zone.
                                                                   93/6/EEC (adapted)
   The institution shall then calculate the unmatched duration-weighted positions for each zone.
   It shall then follow the procedures laid down for unmatched weighted positions in paragraphs
   19 to 22 ⌦ 21 to 24 ⌫ .
                                                                   93/6/EC
   3032. 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;
   (d)       100 % of the residual unmatched duration-weighted positions.
   EQUITIES
   3133. The institution shall sum all its net long positions and all its net short positions in
   accordance with paragraph 1. The sum of the two figures shall be its overall gross position.
   The difference between them shall be its overall net position.
EN                                                62                                             EN
 ---pagebreak---    Specific risk
                                                                    93/6/EEC
                                                                    new
   32.34 The institution shall sum all its net long positions and all its net short positions in
   accordance with paragraph 1.  It shall multiply its overall gross position by 4 % in order to
   calculate its capital requirement against specific risk.
                                                                    93/6/EC (adapted)
   3335. Notwithstanding paragraph 35 ⌦ By derogation to paragraph 34 ⌫, the competent
   authorities may allow the capital requirement against specific risk to be 2% rather than 4% for
   those portfolios of equities that an institution holds which meet the following conditions:
                                                                    98/31/EC Art. 1.7 and Annex
                                                                .1(d) (adapted)
   (ia)     the equities shall not be those of issuers which have issued only traded debt
            instruments that currently attract an 8 % requirement in Table 1 appearing in
            paragraph 14 or that attract a lower requirement only because they are guaranteed or
            secured;
                                                                    93/6/EEC
   (iib)    the equities must be adjudged highly liquid by the competent authorities according to
            objective criteria;
                                                                    93/6/EEC (adapted)
   (iiic)   no individual position shall comprise more than 5 % of the value of the institution's
            whole equity portfolio. However
            ⌦ For the purpose of point (c) ⌫, the competent authorities may authorizse
            individual positions of up to 10 % provided that the total of such positions does not
            exceed 50 % of the portfolio.
                                                                    93/6/EEC
   General risk
   3436. Its capital requirement against general risk shall be its overall net position multiplied by
   8 %.
EN                                                  63                                                EN
 ---pagebreak---    Stock-index futures
                                                                    93/6/EEC (adapted)
   3537. Stock-index futures, the delta-weighted equivalents of options in stock-index futures
   and stock indices collectively referred to hereafter as «stock-index futures», may be broken
   down into positions in each of their constituent equities. These positions may be treated as
   underlying positions in the equities in question,; therefore ⌦ and may ⌫, subject to the
   approval of the competent authorities, they may be netted against opposite positions in the
   underlying equities themselves.
                                                                    93/6/EEC
   3638. The competent authorities shall ensure that any institution which has netted off its
   positions in one or more of the equities constituting a stock-index future against one or more
   positions in the stock-index future itself has adequate capital to cover the risk of loss caused
   by the future's values not moving fully in line with that of its constituent equities; they shall
   also do this when an institution holds opposite positions in stock-index futures which are not
   identical in respect of either their maturity or their composition or both.
                                                                    93/6/EEC (adapted)
   3739. Notwithstanding ⌦ By derogation to ⌫ paragraphs 35 and 36 ⌦ 37 and 38 ⌫,
   stock-index futures which are exchange traded and — in the opinion of the competent
   authorities — represent broadly diversified indices shall attract a capital requirement against
   general risk of 8 %, but no capital requirement against specific risk. Such stock-index futures
   shall be included in the calculation of the overall net position in paragraph 31 ⌦ 33 ⌫, but
   disregarded in the calculation of the overall gross position in the same paragraph.
                                                                    93/6/EEC
   3840. If a stock-index future is not broken down into its underlying positions, it shall be
   treated as if it were an individual equity. However, the specific risk on this individual equity
   can be ignored if the stock-index future in question is exchange traded and, in the opinion of
   the competent authorities, represents a broadly diversified index.
   UNDERWRITING
                                                                    93/6/EEC (adapted)
   3941. In the case of the underwriting of debt and equity instruments, the competent authorities
   may allow an institution to use the following procedure in calculating its capital requirements.
   Firstly, it shall calculate the net positions by deducting the underwriting positions which are
   subscribed or sub-underwritten by third parties on the basis of formal agreements; secondly.
   Secondly, it shall reduce the net positions by the following reduction factors: ⌦ in Table
   4⌫
   Table 4
EN                                                   64                                              EN
 ---pagebreak---                                      — working day 0:          100 %
                                     — working day 1:          90 %
                                     — working days 2 to       75 %
                                     3:
                                     — working day 4:          50 %
                                     — working day 5:          25 %
                                     — after working day       0 %.
                                     5:
                                                                     93/6/EEC
   Working day zero shall be the working day on which the institution becomes unconditionally
   committed to accepting a known quantity of securities at an agreed price.
   Thirdly, it shall calculate its capital requirements using the reduced underwriting positions.
   The competent authorities shall ensure that the institution holds sufficient capital against the
   risk of loss which exists between the time of the initial commitment and working day 1.
                                                                    new
   SPECIFIC RISK CAPITAL CHARGES FOR TRADING BOOK POSITIONS
   HEDGED BY CREDIT DERIVATIVES
   42. An allowance shall be given for protection provided by credit derivatives, in accordance
   with the principles set out in paragraphs 43 to 46.
   43. Full allowance shall be given when the value of two legs always move in the opposite
   direction and broadly to the same extent. This will be the case in either of the following
   situations:
             (a)   the two legs consist of completely identical instruments;
             (b)   a long cash position is hedged by a total rate of return swap (or vice versa) and
                   there is an exact match between the reference obligation and the underlying
                   exposures (i.e., the cash position). The maturity of the swap itself may be
                   different from that of the underlying exposure.
   In these cases, a specific risk capital charge should not be applied to either side of the
   position.
   44. An 80% offset will be applied when the value of two legs always move in the opposite
   direction and where there is an exact match in terms of the reference obligation, the maturity
   of both the reference obligation and the credit derivative, and the currency of the underlying
   exposure. In addition, key features of the credit derivative contract should not cause the price
   movement of the credit derivative to materially deviate from the price movements of the cash
EN                                                  65                                               EN
 ---pagebreak---    position. To the extent that the transaction transfers risk, an 80% specific risk offset will be
   applied to the side of the transaction with the higher capital charge, while the specific risk
   requirements on the other side shall be zero.
   45. Partial allowance shall be given when the value of two legs usually move in the opposite
   direction. This would be the case in the following situations:
             (a)    the position is captured in paragraph 43(b) but there is an asset mismatch
                    between the reference obligation and the underlying exposure. However, the
                    positions meet the following requirements:
                    (i)   the reference obligation ranks pari passu with or is junior to the
                          underlying obligation;
                    (ii)  the underlying obligation and reference obligation share the same obligor
                          and have legally enforceable cross-default or cross-acceleration clauses;
             (b)    the position is captured in paragraph 43(a) or paragraph 44 but there is a
                    currency or maturity mismatch between the credit protection and the
                    underlying asset (currency mismatches should be included in the normal
                    reporting foreign exchange risk under Annex III;
             (c)    the position is captured in paragraph 44 but there is an asset mismatch between
                    the cash position and the credit derivative. However, the underlying asset is
                    included in the (deliverable) obligations in the credit derivative documentation.
   In each of those cases, rather than adding the specific risk capital requirements for each side
   of the transaction, only the higher of the two capital requirements shall apply.
   46. In all cases not falling under paragraph 45, a specific risk capital charge will be assessed
   against both sides of the position.
   CAPITAL CHARGES FOR CIUS IN THE TRADING BOOK
   47. The capital requirements for positions in collective investment undertakings (CIUs) which
   meet the conditions specified in Article 11 for a trading book capital treatment, shall be
   calculated in accordance with the methods set out in paragraphs 48 to 56.
   48. Without prejudice to other provisions in this section, positions in CIUs shall be subject to
   a capital requirement for position risk (specific and general) of 32%. Without prejudice to
   provisions in Annex III (3)(i) or Annex V (13)(v), where the modified gold treatment set out
   in those paragraphs is used, positions in CIUs shall be subject to a capital requirement for
   position risk (specific and general) and foreign-exchange risk of no more than 40%.
   49. Institutions may determine the capital requirement for positions in CIUs which meet the
   criteria set out in paragraph 51, by the methods set out in paragraphs 53 to 56.
   50. Unless noted otherwise, no netting is permitted between the underlying investments of a
   CIU and other positions held by the institution.
   GENERAL CRITERIA
EN                                                  66                                                EN
 ---pagebreak---    51. The general eligibility criteria for using the methods in paragraphs 53 to 56, for CIUs
   issued by companies supervised or incorporated within the Community are that:
             (a)   the CIU’s prospectus or equivalent document shall include:
                   (i)   the categories of assets the CIU is authorised to invest in;
                   (ii)  if investment limits apply, the relative limits and the methodologies to
                         calculate them;
                   (iii) if leverage is allowed, the maximum level of leverage;
                   (iv) if investment in OTC financial derivatives or repo-style transactions are
                         allowed, a policy to limit counterparty risk arising from these
                         transactions;
             (b)   the business of the CIU shall be reported in half-yearly and annual reports to
                   enable an assessment to be made of the assets and liabilities, income and
                   operations over the reporting period;
             (c)   the units/shares of the CIU are redeemable in cash, out of the undertaking’s
                   assets, on a daily basis at the request of the unit holder;
             (d)   investments in the CIU shall be segregated from the assets of the CIU manager;
             (e)   there shall be adequate risk assessment, by the investing institution, of the CIU.
   52. Third country CIUs may be eligible if the requirements in points (a) to (e) of paragraph 51
   are met, subject to the approval of the institution’s competent authority.
   SPECIFIC METHODS
   53. Where the institution is aware of the underlying investments of the CIU on a daily basis
   the institution may look through to those underlying investments in order to calculate the
   capital requirements for position risk (general and specific) for those positions in accordance
   with the methods set out in this Annex or, if permission has been granted, in accordance with
   the methods set out in Annex V. Under this approach, positions in CIUs shall be treated as
   positions in the underlying investments of the CIU. Netting is permitted between positions in
   the underlying investments of the CIU and other positions held by the institution, as long as
   the institution holds a sufficient quantity of units to allow for redemption/creation in exchange
   for the underlying investments.
   54. Institutions may calculate the capital requirements for position risk (general and specific)
   for positions in CIUs in accordance with the methods set out in this Annex or, if permission
   has been granted, in accordance with the methods set out in Annex V, to assumed positions
   representing those necessary to replicate the composition and performance of the externally
   generated index or fixed basket of equities or debt securities referred to in (a), subject to the
   following conditions:
             (a)   the purpose of the CIU’s mandate is to replicate the composition and
                   performance of an externally generated index or fixed basket of equities or debt
                   securities;
EN                                                   67                                               EN
 ---pagebreak---             (b)    a minimum correlation of 0.9 between daily price movements of the CIU and
                   the index or basket of equities or debt securities it tracks can be clearly
                   established over a minimum period of six months. Correlation in this context
                   means the correlation coefficient between daily returns on the exchange traded
                   fund and the index or basket of equities or debt securities it tracks.
   55. Where the institution is not aware of the underlying investments of the CIU on a daily
   basis, the institution may calculate the capital requirements for position risk (general and
   specific) in accordance with the methods set out in this Annex, subject to the following
   conditions:
            (a)    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;
            (b)    institutions shall take account of the maximum indirect exposure that they
                   could achieve by taking leveraged positions through the CIU when calculating
                   their capital requirement for position risk, by proportionally increasing the
                   position in the CIU up to the maximum exposure to the underlying investment
                   items resulting from the investment mandate;
            (c)    should the capital requirement for position risk (general and specific) under
                   this approach exceed that set out in paragraph 48, the capital requirement shall
                   be capped at that level.
   56. Institutions may rely on a third party to calculate and report capital requirements for
   position risk (general and specific) for positions in CIUs falling within paragraphs 53 and 55,
   in accordance with the methods set out in this Annex, provided that the correctness of the
   calculation and the report is adequately ensured.
EN                                                 68                                                EN
 ---pagebreak---                                                                   93/6/EEC (adapted)
                                               ANNEX II
      ⌦ CALCULATING CAPITAL REQUIREMENTS FOR ⌫ SETTLEMENT AND
                                     COUNTER-PARTY RISK
   SETTLEMENT/DELIVERY RISK
                                                                  98/31/EC Art. 1.7 and Annex
                                                               .2(a)
   1. In the case of transactions in which debt instruments, equities and commodities (excluding
   repurchase and reverse repurchase agreements and securities or commodities lending and
   securities or commodities borrowing) are unsettled after their due delivery dates, an
   institution must calculate the price difference to which it is exposed. This is the difference
   between the agreed settlement price for the debt instrument, equity or commodity in question
   and its current market value, where the difference could involve a loss for the institution. It
   must multiply this difference by the appropriate factor in column A of the table appearing in
   paragraph 2 in order to calculate its capital requirement.
                                                                  93/6/EEC (adapted)
   2. Notwithstanding ⌦ By derogation to ⌫ paragraph 1, an institution may, at the discretion
   of its competent authorities, calculate its capital requirements by multiplying the agreed
   settlement price of every transaction which is unsettled between 5 and 45 working days after
   its due date by the appropriate factor in column B of the tTable 1below. As from 46 working
   days after the due date it shall take the requirement to be 100 % of the price difference to
   which it is exposed as in column A ⌦ of Table 1⌫ .
   ⌦ Table 1 ⌫
       Number of working days after due settlement date         Column A          Column B
                                                                   (%)               (%)
      5 — 15                                                               8                0.5
      16 — 30                                                             50                4.0
      31 — 45                                                             75                9.0
      46 or more                                                         100 see paragraph 2
EN                                                  69                                             EN
 ---pagebreak---    COUNTER-PARTY RISK
                                                                   new
   3. An institution shall be required to hold capital against the counterparty risk arising from
   exposures due to the following:
            (a)    free deliveries;
            (b)    OTC derivative instruments and credit derivatives;
            (c)    Repurchase agreements, reverse repurchase agreements, securities or
                   commodities lending or borrowing transactions based on securities or
                   commodities included in the trading book;
            (d)    exposures in the form of fees, commission, interest dividends and margin in
                   exchange-traded derivative contracts which are neither covered in this Annex
                   or Annex I, nor deducted from own funds under paragraph 2(d) of Article 13,
                   and which are directly related to the items included in the trading book.
   4. For these purposes a free-delivery will be deemed to have occurred if the institution has
   paid for securities or commodities before receiving them or it has delivered securities or
   commodities before receiving payment for them, and, in the case of cross-border transactions,
   one day or more has elapsed since it made that payment or delivery.
   5. Subject to paragraphs 6 to 9, exposure values and risk-weighted exposure amounts for such
   exposures shall be calculated in accordance with the provisions of Title V, Chapter 2, Section
   3 of Directive [2000/12/EC] with references to ‘credit institutions’ in that Section interpreted
   as references to ‘institutions’, references to ‘parent credit institutions’ interpreted as
   references to ‘parent institutions’, and with concomitant terms interpreted accordingly.
   6. For the purposes of paragraph 5:
   Annex IV to Directive [2000/12/EC] shall be considered to be amended to include after point
   3(d) the words ‘and credit derivatives’;
   Annex III to Directive [2000/12/EC] shall be considered to be amended to include after Table
   1(a):
            To obtain a figure for potential future credit exposure in the case of total return swap
            credit derivatives and credit default swap credit derivatives, the nominal amount of
            the instrument is multiplied by the following percentages:
            Where the reference obligation is one that if it gave rise to a direct exposure of the
            institution would be a qualifying item for the purposes of Annex I - 5%;
            Where the reference obligation is one that if it gave rise to a direct exposure of the
            institution would not be a qualifying item for the purposes of Annex I - 10%.
            However, in the case of a credit default swap, an institution the exposure of which
            arising from the swap represents a long position in the underlying shall be permitted
            to use a figure of 0% for potential future credit exposure, unless the credit default
EN                                                 70                                                EN
 ---pagebreak---              swap is subject to closeout upon the insolvency of the entity the exposure of which
             arising from the swap represents a short position in the underlying, even though the
             underlying has not defaulted.”
   Where the credit derivative provides protection in relation to ‘nth to default’ amongst a
   number of underlying obligations, which of the percentage figures prescribed above is to be
   applied is determined by the obligation with the nth lowest credit quality determined by
   whether it is one that if incurred by the institution would be a qualifying item for the purposes
   of Annex I.’
   7. For the purposes of paragraph 5, in calculating risk-weighted exposure amounts institutions
   shall not be permitted to use the Financial Collateral Simple Method, set out in Annex VIII,
   Part 3, paragraphs 25 to 30 of Directive [2000/12/EC], for the recognition of the effects of
   financial collateral.
   8. For the purposes of paragraph 5, in the case of repurchase transactions and securities or
   commodities lending or borrowing transactions, all financial instruments and commodities
   that are eligible to be included in the trading book may be recognised as eligible collateral.
   For exposures due to OTC derivative instruments booked in the trading book, commodities
   that are eligible to be included in the trading book may also be recognised as eligible
   collateral. For the purposes of calculating volatility adjustments where such financial
   instruments or commodities are lent, sold or provided, or borrowed, purchased or received by
   way of collateral or otherwise under such a transaction such instruments and commodities
   shall be treated in the same way as non-main index equities listed on a recognised exchange.
   9. For the purposes of paragraph 5, in relation to the recognition of master netting agreements
   covering repurchase transactions and/or securities or commodities lending or borrowing
   transactions and/or other capital market-driven transactions netting across positions in the
   trading book and the non-trading book will only be recognised when the netted transactions
   fulfil the following conditions:
             (a)   all transactions are marked to market daily;
             (b)   any items lent, sold or provided, or borrowed, purchased or received under the
                   transactions may be recognised as eligible financial collateral under Title V,
                   Chapter 2, Section 3, Sub-section 3 of Directive [2000/12/EC] without the
                   application of paragraph 8 of this Annex.
   10. Where a credit derivative included in the trading book forms part of an internal hedge and
   the credit protection is recognised under Directive [2000/12/EC], there shall be deemed not to
   be counterparty risk arising from the position in the credit derivative.
   11. The capital requirement shall be 8% of the total risk-weighted exposure amounts.
EN                                                  71                                               EN
 ---pagebreak---                                                                       93/6/EEC
   Free deliveries
                                                                      98/31/EC Art. 1.7 and Annex
                                                                  .2(b)
   3.1. An institution shall be required to hold capital against counterparty risk if:
   (i)       it has paid for securities or commodities before receiving them or it has delivered
             securities or commodities before receiving payment for them;
             and
   (ii)      in the case of cross-border transactions, one day or more has elapsed since it made
             that payment or delivery.
   3.2. The capital requirement shall be 8 % of the value of the securities or commodities or cash
   owed to the institution multiplied by the risk weighting applicable to the relevant
   counterparty.
                                                                      98/31/EC Art. 1.7 and Annex
                                                                  .2(c)
   Repurchase and reverse repurchase agreements, securities or commodities lending and
             borrowing
   4.1. In the case of repurchase agreements and securities or commodities lending based on
   securities or commodities included in the trading book the institution shall calculate the
   difference between the market value of the securities or commodities and the amount
   borrowed by the institution or the market value of the collateral, where that difference is
   positive. In the case of reverse repurchase agreements and securities or commodities
   borrowing, the institution shall calculate the difference between the amount the institution has
   lent or the market value of the collateral and the market value of the securities or commodities
   it has received, where that difference is positive.
                                                                      93/6/EEC
   The competent authorities shall take measures to ensure that the excess collateral given is
   acceptable.
   Furthermore, the competent authorities may allow institutions not to include the amount of
   excess collateral in the calculations described in the first two sentences of this paragraph if the
   amount of excess collateral is guaranteed in such a way that the transferor is always assured
   that the excess collateral will be returned to it in the event of defaults of its counter-party.
   Accrued interest shall be included in calculating the market value of amounts lent or
   borrowed and collateral.
EN                                                   72                                                EN
 ---pagebreak---    4.2. The capital requirement shall be 8 % of the figure produced in accordance with paragraph
   4.1, multiplied by the risk weighting applicable to the relevant counter-party.
   OTC derivative instruments
                                                                   98/33/EC Art. 3.2
   5. In order to calculate the capital requirement on their OTC derivative instruments,
   institutions shall apply Article II to Directive 89/647/EEC. The risk weightings to be applied
   to the relevant counterparties shall be determined in accordance with Article 2(9) of this
   Directive.
   Until 31 December 2006, the competent authorities of Member States may exempt from the
   application of the methods set out in Annex II OTC contracts cleared by a clearing house
   where the latter acts as the legal counterparty and all participants fully collateralise on a daily
   basis the exposure they present to the clearing house, thereby providing a protection covering
   both the current exposure and the potential future exposure. The competent authorities must
   be satisfied that the posted collateral gives the same level of protection as collateral which
   complies with Article 6(1)(a)(7) of Directive 89/647/EEC and that the risk of a build-up of the
   clearing house's exposures beyond the market value of posted collateral is eliminated.
   Member States shall inform the Commission of the use they make of this option.
                                                                   93/6/EEC
   OTHER
   6. The capital requirements of Directive 89/647/EEC shall apply to those exposures in the
   form of fees, commission, interest, dividends and margin in exchange-traded futures or
   options contracts which are neither covered in this Annex or Annex I nor deducted from own
   funds under paragraph 2 (d) of Annex V and which are directly related to the items included
   in the trading book
   The risk weightings to be applied to the relevant counter-parties shall be determined in
   accordance with Article 2 (9) of this Directive.
EN                                                 73                                                  EN
 ---pagebreak---                                                                    93/6/EEC (adapted)
                                               ANNEX III
    ⌦ CALCULATING CAPITAL REQUIREMENTS FOR ⌫ FOREIGN-EXCHANGE
                                                  RISK
                                                                   98/31/EC Art. 1.7 and Annex
                                                                .3(a) (adapted)
   1. If the sum of an institution's overall net foreign-exchange position and its net gold position,
   calculated in accordance with the procedure set out below ⌦ in paragraph 2 ⌫ , exceeds
   2 % of its total own funds, it shall multiply the sum of its net foreign-exchange position and
   its net gold position by 8 % in order to calculate its own-funds requirement against foreign-
   exchange risk.
   Until 31 December 2004, the competent authorities may allow institutions to calculate their
   own-funds requirement by multiplying by 8 % the amount by which the sum of the overall net
   foreign-exchange position and the net gold position exceeds 2 % of the total own funds.
                                                                   93/6/EEC (adapted)
   2. A two-stage calculation shall be used ⌦ for capital requirements for foreign-exchange
   risk ⌫.
                                                                   98/31/EC Art. 1.7 and Annex
                                                                .3(b) (adapted)
   32.1. Firstly, the institution's net open position in each currency (including the reporting
   currency) and in gold shall be calculated.
   This ⌦ net open ⌫ position shall consist of the sum of the following elements (positive or
   negative):
             -(a) 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),
             -(b) 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
EN                                                  74                                                 EN
 ---pagebreak---                     transactions may be included here). Such discretion must be exercised on a
                    consistent basis,
             -(e) the net delta (or delta-based) equivalent of the total book of foreign-currency
                    and gold options,
             -(f)   the market value of other (i.e. non-foreign-currency and non-gold) options,.
             - aAny positions which an institution has deliberately taken in order to hedge against
             the adverse effect of the exchange rate on its capital ratio may be excluded from the
             calculation of net open currency positions. Such positions should be of a non-trading
             or structural nature and their exclusion, and any variation of the terms of their
             exclusion, shall require the consent of the competent authorities. The same treatment
             subject to the same conditions as above may be applied to positions which an
             institution has which relate to items that are already deducted in the calculation of
             own funds.
                                                                    new
             For the purposes of the calculation referred to in the first sub-paragraph, in respect
             of CIUs the actual foreign exchange positions of the CIU shall be taken into account.
             Institutions may rely on third party reporting of the foreign exchange positions in the
             CIU, where the correctness of this report is adequately ensured. If an institution is
             not aware of the foreign exchange positions in a CIU, it shall be assumed that the
             CIU is invested up to the maximum extent allowed under the CIU’s mandate in
             foreign exchange and institutions shall, for trading book positions, take account of
             the maximum indirect exposure that they could achieve by taking leveraged positions
             through the CIU when calculating their capital requirement for foreign exchange
             risk. This shall be done by proportionally increasing the position in the CIU up to the
             maximum exposure to the underlying investment items resulting from the investment
             mandate. The assumed position of the CIU in foreign exchange shall be treated as a
             separate currency according to the treatment of investments in gold, subject to the
             modification that, if the direction of the CIU's investment is available, the total long
             position may be added to the total long open foreign exchange position and the total
             short position may be added to the total short open foreign exchange position. There
             would be no netting allowed between such positions prior to the calculation.
                                                                    98/31/EC Art. 1.7 and Annex
                                                                 .3(b)
   3.2 The competent authorities shall have the discretion to allow institutions to use the net
   present value when calculating the net open position in each currency and in gold.
                                                                    93/6/EEC
                                                                    1 98/31/EC Art. 1.7 and Annex
                                                                 .3(c)
      1 42.2. Secondly, net short and long positions in each currency other than the reporting
   currency and the net long or short position in gold shall be converted at spot rates into the
   reporting currency.  They shall then be summed separately to form the total of the net short
EN                                                   75                                               EN
 ---pagebreak---    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.
                                                                    93/6/EEC (adapted)
   53. Notwithstanding ⌦ By derogation to ⌫ paragraphs 1 to 4 ⌦ and 2 ⌫ and pending
   further coordination, the competent authorities may prescribe or allow institutions to use
   alternative ⌦ the following ⌫ procedures for the purposes of this Annex.
                                                                    93/6/EEC (adapted)
   63.1. Firstly, tThe competent authorities may allow institutions to provide lower capital
   requirements against positions in closely correlated currencies than those which would result
   from applying paragraphs 1 to 4 ⌦ and 2 ⌫ to them. The competent authorities may deem a
   pair of currencies to be closely correlated only if the likelihood of a loss — calculated on the
   basis of daily exchange-rate data for the preceding three or five years — occurring on equal
   and opposite positions in such currencies over the following 10 working days, which is 4 % or
   less of the value of the matched position in question (valued in terms of the reporting
   currency) has a probability of at least 99 %, when an observation period of three years is used,
   or 95 %, when an observation period of five years is used. The own-funds requirement on the
   matched position in two closely correlated currencies shall be 4 % multiplied by the value of
   the matched position. The capital requirement on unmatched positions in closely correlated
   currencies, and all positions in other currencies, shall be 8 %, multiplied by the higher of the
   sum of the net short or the net long positions in those currencies after the removal of matched
   positions in closely correlated currencies.
                                                                    98/31/EC Art. 1.7 and Annex
                                                                 .3(d) (adapted)
   7. Secondly, until 31 December 2004, the competent authorities may allow institutions to
   apply an alternative method to those outlined in paragraphs 1 to 6 for the purposes of this
   Annex. The capital requirement produced by this method must be sufficient to exceed 2 % of
   the net open position as measured in paragraph 4 and, on the basis of an analysis of exchange-
   rate movements during all the rolling 10-working-day periods over the preceding three years,
   to exceed the likely loss 99 % or more of the time.
   The alternative method described in the first subparagraph may only be used under the
   following conditions:
   (i)       the calculation formula and the correlation coefficients are set by the competent
             authorities, based on their analysis of exchange-rate movements;
   (ii)      the competent authorities review the correlation coefficients regularly in the light of
             developments in foreign-exchange markets.
                                                                    93/6/EEC (adapted)
   83.2. Thirdly, tThe competent authorities may allow institutions to remove positions in any
   currency which is subject to a legally binding intergovernmental agreement to limit its
   variation relative to other currencies covered by the same agreement from whichever of the
EN                                                  76                                               EN
 ---pagebreak---    methods described in paragraphs 1 to 7 ⌦, 2 and 3.1 ⌫ that they apply. Institutions shall
   calculate their matched positions in such currencies and subject them to a capital requirement
   no lower than half of the maximum permissible variation laid down in the intergovernmental
   agreement in question in respect of the currencies concerned. Unmatched positions in those
   currencies shall be treated in the same way as other currencies.
   Notwithstanding ⌦ By derogation to ⌫ the first ⌦ sub- ⌫ paragraph, the competent
   authorities may allow the capital requirement on the matched positions in currencies of
   Member States participating in the second stage of the European monetary union to be 1.6 %,
   multiplied by the value of such matched positions.
                                                                  93/6/EEC (adapted)
   9. The competent authorities shall notify the Council and Commission of the methods, if any,
   that they are prescribing or allowing in respect of paragraphs 6 to 8.
   10. The Commission shall report to the Council on the methods referred to in paragraph 9
   and, where necessary and with due regard to international developments, shall propose a more
   harmonized treatment of foreign-exchange risk.
                                                                  93/6/EEC
   114. Net positions in composite currencies may be broken down into the component
   currencies according to the quotas in force.
EN                                                77                                              EN
 ---pagebreak---                                                                    98/31/EC Art. 1.7 and Annex .5
                                                                (adapted)
                                        ANNEX VIII ⌦ IV ⌫
     ⌦ CALCULATING CAPITAL REQUIREMENTS FOR ⌫ COMMODITIES RISK
                                                                   98/31/EC Art. 1.7 and Annex .5
   1. Each position in commodities or commodity derivatives shall be expressed in terms of the
   standard unit of measurement. The spot price in each commodity shall be expressed in the
   reporting currency.
                                                                   98/31/EC Art. 1.7 and Annex .5
                                                                (adapted)
   2. Positions in gold or gold derivatives shall be considered as being subject to foreign-
   exchange risk and treated according to Annex III or Annex VIII, as appropriate, for the
   purpose of calculating market risk.
   3. For the purposes of this Annex, positions which are purely stock financing may be
   excluded from the commodities risk calculation only.
   4. The interest-rate and foreign-exchange risks not covered by other provisions of this Annex
   shall be included in the calculation of general risk for traded debt instruments and in the
   calculation of foreign-exchange risk.
   5. When the short position falls due before the long position, institutions shall also guard
   against the risk of a shortage of liquidity which may exist in some markets.
   6. For the purpose of paragraph 19, the excess of an institution's long (short) positions over its
   short (long) positions in the same commodity and identical commodity futures, options and
   warrants shall be its net position in each commodity.
   The competent authorities shall allow positions in derivative instruments to be treated, as laid
   down in paragraphs 8, 9 and 10, as positions in the underlying commodity.
                                                                   98/31/EC Art. 1.7 and Annex .5
   7. The competent authorities may regard the following positions as positions in the same
   commodity:
   -(a)     positions in different sub-categories of commodities in cases where the sub-
            categories are deliverable against each other;
            and
   -(b)     positions in similar commodities if they are close substitutes and if a minimum
            correlation of 0,9 0.9 between price movements can be clearly established over a
            minimum period of one year.
EN                                                 78                                                 EN
 ---pagebreak---                                                                      98/31/EC Art. 1.7 and Annex .5
   PARTICULAR INSTRUMENTS
                                                                     98/31/EC Art. 1.7 and Annex .5
                                                                  (adapted)
   8. Commodity futures and forward commitments to buy or sell individual commodities shall
   be incorporated in the measurement system as notional amounts in terms of the standard unit
   of measurement and assigned a maturity with reference to expiry date.
   The competent authorities may allow the capital requirement for an exchange-traded future to
   be equal to the margin required by the exchange if they are fully satisfied that it provides an
   accurate measure of the risk associated with the future and that it is at least equal to the capital
   requirement for a future that would result from a calculation made using the method set out in
   the remainder of this Annex or applying the internal models method described in Annex VIII.
   Until 31 December 2006 tThe competent authorities may also allow the capital requirement
   for an OTC commodity derivatives contract of the type referred to in this paragraph cleared
   by a clearing house recognised by them to be equal to the margin required by the clearing
   house if they are fully satisfied that it provides an accurate measure of the risk associated with
   the derivatives contract and that it is at least equal to the capital requirement for the contract
   in question that would result from a calculation made using the method set out in the
   remainder of this Annex or applying the internal models method described in Annex VIII.
                                                                     98/31/EC Art. 1.7 and Annex .5
                                                                  (adapted)
   9. Commodity swaps where one side of the transaction is a fixed price and the other the
   current market price shall be incorporated into the maturity ladder approach ⌦, as set out in
   paragraphs 13 to 18, ⌫ as a series of positions equal to the notional amount of the contract,
   with one position corresponding with each payment on the swap and slotted into the maturity
   ladder set out in the tTable appearing in paragraph 13 ⌦ 1 ⌫. The positions would be long
   positions if the institution is paying a fixed price and receiving a floating price and short
   positions if the institution is receiving a fixed price and paying a floating price.
   Commodity swaps where the sides of the transaction are in different commodities are to be
   reported in the relevant reporting ladder for the maturity ladder approach.
                                                                     98/31/EC Art. 1.7 and Annex .5
                                                                  (adapted)
   10. Options on commodities or on commodity derivatives shall be treated as if they were
   positions equal in value to the amount of the underlying to which the option refers, multiplied
   by its delta for the purposes of this Annex. The latter positions may be netted off against any
   offsetting positions in the identical underlying commodity or commodity derivative. The delta
   used shall be that of the exchange concerned, that calculated by the competent authorities or,
   where none of those is available, or for OTC options, that calculated by the institution itself,
EN                                                   79                                                 EN
 ---pagebreak---    subject to the competent authorities being satisfied that the model used by the institution is
   reasonable.
   However, the competent authorities may also prescribe that institutions calculate their deltas
   using a methodology specified by the competent authorities.
   The competent authorities shall require that the oOther risks, apart from the delta risk,
   associated with commodity options are ⌦ shall be ⌫ safeguarded against.
   The competent authorities may allow the requirement for a written exchange-traded
   commodity option to be equal to the margin required by the exchange if they are fully
   satisfied that it provides an accurate measure of the risk associated with the option and that it
   is at least equal to the capital requirement against an option that would result from a
   calculation made using the method set out in the remainder of this Annex or applying the
   internal models method described in Annex VIII.
   Until 31 December 2006 tThe competent authorities may also allow the capital requirement
   for an OTC commodity option cleared by a clearing house recognised by them to be equal to
   the margin required by the clearing house if they are fully satisfied that it provides an accurate
   measure of the risk associated with the option and that it is at least equal to the capital
   requirement for an OTC option that would result from a calculation made using the method
   set out in the remainder of this Annex or applying the internal models method described in
   Annex VIII.
   In addition they may allow the requirement on a bought exchange-traded or OTC commodity
   option to be the same as that for the commodity underlying it, subject to the constraint that the
   resulting requirement does not exceed the market value of the option. The requirement for a
   written OTC option shall be set in relation to the commodity underlying it.
                                                                   98/31/EC Art. 1.7 and Annex .5
                                                                (adapted)
   11. Warrants relating to commodities shall be treated in the same way as commodity options
   under ⌦ referred to in ⌫ paragraph 10.
                                                                   98/31/EC Art. 1.7 and Annex .5
   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.
                                                                   98/31/EC Art. 1.7 and Annex .5
                                                                (adapted)
   (a) Maturity ladder approach
   13. The institution shall use a separate maturity ladder in line with the following tTable 1 for
   each commodity. All positions in that commodity and all positions which are regarded as
   positions in the same commodity pursuant to paragraph 7 shall be assigned to the appropriate
   maturity bands. Physical stocks shall be assigned to the first maturity band.
EN                                                 80                                                 EN
 ---pagebreak---    ⌦ Table 1 ⌫
                                  Maturity band          Spread rate
                                        (1)                (in %)
                                                             (2)
                                0 ≤ 1 month                          1.50
                                > 1 ≤ 3 months                       1.50
                                > 3 ≤ 6 months                       1.50
                                > 6 ≤ 12 months                      1.50
                                > 1 ≤ 2 years                        1.50
                                > 2 ≤ 3 years                        1.50
                                > 3 years                            1.50
   14. Competent authorities may allow positions which are, or are regarded pursuant to
   paragraph 7 as, positions in the same commodity to be offset and assigned to the appropriate
   maturity bands on a net basis for ⌦ the following ⌫ :
   - (a)    positions in contracts maturing on the same date;
   and
   - (b)     positions in contracts maturing within 10 days of each other if the contracts are
             traded on markets which have daily delivery dates.
                                                                   98/31/EC Art. 1.7 and Annex .5
   15. The institution shall then work out the sum of the long positions and the sum of the short
   positions in each maturity band. The amount of the former (latter) which are matched by the
   latter (former) in a given maturity band shall be the matched positions in that band, while the
   residual long or short position shall be the unmatched position for the same band.
   16. That part of the unmatched long (short) position for a given maturity band that is matched
   by the unmatched short (long) position for a maturity band further out shall be the matched
   position between two maturity bands. That part of the unmatched long or unmatched short
   position that cannot be thus matched shall be the unmatched position.
   17. The institution's capital requirement for each commodity shall be calculated on the basis
   of the relevant maturity ladder as the sum of the following:
   (ia)      the sum of the matched long and short positions, multiplied by the appropriate spread
             rate as indicated in the second column of the table appearing in paragraph 13 for each
             maturity band and by the spot price for the commodity;
EN                                                 81                                               EN
 ---pagebreak---    (iib)     the matched position between two maturity bands for each maturity band into which
             an unmatched position is carried forward, multiplied by 0,6 % (carry rate) and by the
             spot price for the commodity;
   (iiic)    the residual unmatched positions, multiplied by 15 % (outright rate) and by the spot
             price for the commodity.
   18. The institution's overall capital requirement for commodities risk shall be calculated as the
   sum of the capital requirements calculated for each commodity according to paragraph 17.
   (b) Simplified approach
   19. The institution's capital requirement for each commodity shall be calculated as the sum of:
   (ia)      15% of the net position, long or short, multiplied by the spot price for the
             commodity;
   (iib)     3% of the gross position, long plus short, multiplied by the spot price for the
             commodity.
   20. The institution's overall capital requirement for commodities risk shall be calculated as the
   sum of the capital requirements calculated for each commodity according to paragraph 19.
                                                                    93/6/EEC Art 11a (adapted)
   ⌦ (c) Extended Maturity ladder approach ⌫
   Until 31 December 2006, Member States ⌦ Competent authorities ⌫ may authorise their
   institutions to use the minimum spread, carry and outright rates set out in the following table
   instead of those indicated in paragraphs 13, 14, 17 and 18 of Annex VII provided that the
   institutions, in the opinion of their competent authorities:
             (a)    undertake significant commodities business,
             (b)    have a diversified commodities portfolio, and
             (c)    are not yet in a position to use internal models for the purpose of calculating
                    the capital requirement on commodities risk in accordance with Annex
                    ⌦ V ⌫ VIII.
   Table 2
                        Precious metals        Base          Agricultural        Other, including
                         (except gold)        metals       products (softs)      energy products
           Spread 1.0                       1.2         1.5                   1.5
          rate (%)
             Carry 0.3                      0.5         0.6                   0.6
          rate (%)
          Outright 8                        10          12                    15
EN                                                  82                                               EN
 ---pagebreak---    rate (%)
EN          83 EN
 ---pagebreak---                                                                       98/31/EC Art. 1.7 and Annex .5
                                                                   (adapted)
                                                                      1 98/31/EC Art. 1.7 and Annex
                                                                   .5 amended by Corrigendum, OJ L
                                                                   248, 8.9.1998, p. 20
                                                ANNEX VIII
            ⌦ USE OF ⌫ INTERNAL MODELS ⌦ TO CALCULATE CAPITAL
                                           REQUIREMENTS ⌫
   1. The competent authorities may, subject to the conditions laid down in this Annex, allow
   institutions to calculate their capital requirements for position risk, foreign-exchange risk
   and/or commodities risk using their own internal risk-management models instead of or in
   combination with the methods described in Annexes I, III and VII ⌦ IV ⌫. Explicit
   recognition by the competent authorities of the use of models for supervisory capital purposes
   shall be required in each case.
   2. Recognition shall only be given if the competent authority is satisfied that the institution's
   risk-management system is conceptually sound and implemented with integrity and that, in
   particular, the following qualitative standards are met:
             (ia) the internal risk-measurement model is closely integrated into the daily risk-
                    management process of the institution and serves as the basis for reporting risk
                    exposures to senior management of the institution;
             (iib) the institution has a risk control unit that is independent from business trading
                    units and reports directly to senior management. The unit must be responsible
                    for designing and implementing the institution's risk-management system. It
                    shall produce and analyse daily reports on the output of the risk-measurement
                    model and on the appropriate measures to be taken in terms of trading limits;
             (iiic) the institution's board of directors and senior management are actively involved
                    in the risk-control process and the daily reports produced by the risk-control
                    unit are reviewed by a level of management with sufficient authority to enforce
                    both reductions of positions taken by individual traders as well as in the
                    institution's overall risk exposure;
             (ivd) the institution has sufficient numbers of staff skilled in the use of sophisticated
                    models in the trading, risk-control, audit and back-office areas;
             (ve) the institution has established procedures for monitoring and ensuring
                    compliance with a documented set of internal policies and controls concerning
                    the overall operation of the risk-measurement system;
             (vif) the institution's models have a proven track record of reasonable accuracy in
                    measuring risks;
             (viig) the institution frequently conduct a rigorous programme of stress testing and
                    the results of these tests are reviewed by senior management and reflected in
                    the policies and limits it sets;
EN                                                   84                                                EN
 ---pagebreak---             (viiih) the institution must conduct, as part of its regular internal auditing process, an
                   independent review of its risk-measurement system.
            This ⌦ The ⌫ review ⌦ referred to in point (h) of the first subparagraph ⌫ must
            ⌦ shall ⌫ include both the activities of the business trading units and of the
            independent risk-control unit. At least once a year, the institution must conduct a
            review of its overall risk-management process.
            The review must ⌦ shall ⌫ consider ⌦ the following ⌫ :
            - (a) the adequacy of the documentation of the risk-management system and process
                   and the organisation of the risk-control unit;
            - (b) the integration of market risk measures into daily risk management and the
                   integrity of the management information system;
            - (c) the process the institution employs for approving risk-pricing models and
                   valuation systems that are used by front and back-office personnel;
            - (d) the scope of market risks captured by the risk-measurement model and the
                   validation of any significant changes in the risk-measurement process;
            - (e) the accuracy and completeness of position data, the accuracy and
                   appropriateness of volatility and correlation assumptions, and the accuracy of
                   valuation and risk sensitivity calculations;
            - (f) the verification process the institution employs to evaluate the consistency,
                   timeliness and reliability of data sources used to run internal models, including
                   the independence of such data sources;
                   and
            - (g) the verification process the institution uses to evaluate back-testing that is
                   conducted to assess the model's accuracy.
   3. The institution shall monitor the accuracy and performance of its model by conducting a
   back-testing programme. The back-testing has to provide for each business day a comparison
   of the one-day value-at-risk measure generated             1 by the institution's model for the
   portfolio's end-of-day positions to the one-day change of the portfolio's value  by the end of
   the subsequent business day.
   Competent authorities shall examine the institution's capability to perform back-testing on
   both actual and hypothetical changes in the portfolio's value. Back-testing on hypothetical
   changes in the portfolio's value is based on a comparison between the portfolio's end-of-day
   value and, assuming unchanged positions, its value at the end of the subsequent day.
   Competent authorities shall require institutions to take appropriate measures to improve their
   back-testing programme if deemed deficient.
   4. For the purpose of calculating capital requirements for specific risk associated with traded
   debt and equity positions, the competent authorities may recognise the use of an institution's
   internal model if, in addition to compliance with the conditions in the remainder of this
   Annex, the model ⌦ meets the following conditions ⌫ :
EN                                                  85                                                 EN
 ---pagebreak---              - (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.
                                                                      98/31/EC Art. 1.7 and Annex .5
   5. Institutions using internal models which are not recognised in accordance with paragraph 4
   shall be subject to a separate capital charge for specific risk as calculated according to Annex
   I.
   6. For the purpose of paragraph 10(ii) the results of the institution's own calculation shall be
   scaled up by a multiplication factor of at least 3.
                                                                      98/31/EC Art. 1.7 and Annex .5
                                                                   (adapted)
   7. The multiplication factor shall be increased by a plus-factor of between 0 and 1 in
   accordance with the following tTable ⌦ 1 ⌫, depending on the number of overshootings for
   the most recent 250 business days as evidenced by the institution's back-testing. Competent
   authorities shall require the institutions to calculate overshootings consistently on the basis of
   back-testing either on actual or on hypothetical changes in the portfolio's value. An
   overshooting is a one-day change in the portfolio's value that exceeds the related one-day
   value-at-risk measure generated by the institution's model. For the purpose of determining the
   plus-factor the number of overshootings shall be assessed at least quarterly.
   ⌦ Table 1 ⌫
                                 Number of overshootings        Plus-factor
                                Fewer than 5                            0.00
                                5                                       0.40
                                6                                       0.50
                                7                                       0.65
                                8                                       0.75
                                9                                       0,85
                                10 or more                              1.00
EN                                                   86                                               EN
 ---pagebreak---    The competent authorities can ⌦ may ⌫, in individual cases and owing to an exceptional
   situation, waive the requirement to increase the multiplication factor by the plus-factor
   according to the above tTable ⌦ 1 ⌫, if the institution has demonstrated to the satisfaction
   of the competent authorities that such an increase is unjustified and that the model is basically
   sound.
   If numerous overshootings indicate that the model is not sufficiently accurate, the competent
   authorities shall revoke the model's recognition or impose appropriate measures to ensure that
   the model is improved promptly.
   In order to allow competent authorities to monitor the appropriateness of the plus-factor on an
   ongoing basis, institutions shall notify promptly, and in any case no later than within five
   working days, the competent authorities of overshootings that result form their back-testing
   programme and that would according to the above table imply an increase of a plus-factor.
   8. If the institution's model is recognised by the competent authorities in accordance with
   paragraph 4 for the purpose of calculating capital requirements for specific risk, the institution
   shall increase its capital requirement calculated pursuant to paragraphs 6, 7 and 10 by a
   surcharge in the amount of either ⌦ of the following ⌫:
   (ia)      the specific risk portion of the value-at-risk measure which should be isolated
             according to supervisory guidelines; or, at the institution's option,
   (iib)     the value-at-risk measures of sub-portfolios of debt and equity positions that contain
             specific risk.
   Institutions using option (ii ⌦ b ⌫) are required to identify their sub-portfolio structure
   beforehand and should not change it without the consent of the competent authorities.
                                                                     98/31/EC Art. 1.7 and Annex .5
   9. The competent authorities may waive the requirement pursuant to paragraph 8 for a
   surcharge if the institution demonstrates that in line with agreed international standards its
   model accurately captures also the event risk and default risk for its traded debt and equity
   positions.
                                                                     98/31/EC Art. 1.7 and Annex .5
                                                                 (adapted)
   10. Each institution must meet a capital requirement expressed as the higher of:
   (ia)      its previous day's value-at-risk number measured according to the parameters
             specified in this Annex;
   (iib)     an average of the daily value-at-risk measures on each of the preceding 60 business
             days, multiplied by the factor mentioned in paragraph 6, adjusted by the factor
             mentioned ⌦ referred to ⌫ in paragraph 7.
                                                                     98/31/EC Art. 1.7 and Annex .5
   11. The calculation of value-at-risk shall be subject to the following minimum standards:
EN                                                 87                                                 EN
 ---pagebreak---    (ia)      at least daily calculation of value-at-risk;
   (iib)     a 99th percentile, one-tailed confidence interval;
   (iiic)    a 10-day equivalent holding period;
   (ivd)     an effective historical observation period of at least one year except where a shorter
             observation period is justified by a significant upsurge in price volatility;
   (ve)      three-monthly data set updates.
   12. The competent authorities shall require that the model captures accurately all the material
   price risks of options or option-like positions and that any other risks not captured by the
   model are covered adequately by own funds.
                                                                    98/31/EC Art. 1.7 and Annex .5
                                                                 (adapted)
   13. The competent authorities shall require that the risk-measurement model ⌦ shall ⌫
   captures a sufficient number of risk factors, depending on the level of activity of the
   institution in the respective markets ⌦ and in particular the following ⌫ .
   As a minimum, the following provisions shall be respected:
   ⌦ Interest rate risk ⌫
   (i)      for interest rate risk, tThe risk-measurement system shall incorporate a set of risk
   factors corresponding to the interest rates in each currency in which the institution has interest
   rate sensitive on- or off-balance sheet positions. The institution shall model the yield curves
   using one of the generally accepted approaches. For material exposures to interest-rate risk in
   the major currencies and markets, the yield curve shall be divided into a minimum of six
   maturity segments, to capture the variations of volatility of rates along the yield curve. The
   risk-measurement system must also capture the risk of less than perfectly correlated
   movements between different yield curves;.
   ⌦ Foreign-exchange risk ⌫
   (ii)     for foreign-exchange risk, tThe risk-measurement system shall incorporate risk factors
   corresponding to gold and to the individual foreign currencies in which the institution's
   positions are denominated;.
                                                                    new
   For CIUs the actual foreign exchange positions of the CIU shall be taken into account.
   Institutions may rely on third party reporting of the foreign exchange position in the CIU,
   where the correctness of this report is adequately ensured. If an institution is not aware of the
   foreign exchange positions in a CIU, it shall be assumed that the CIU is invested up to the
   maximum extent allowed under the CIU’s mandate in foreign exchange and institutions shall,
   for trading book positions, take account of the maximum indirect exposure that they could
   achieve by taking leveraged positions through the CIU when calculating their capital
   requirement for foreign exchange risk. This shall be done by proportionally increasing the
EN                                                   88                                               EN
 ---pagebreak---    position in the CIU up to the maximum exposure to the underlying investment items resulting
   from the investment mandate. The assumed position of the CIU in foreign exchange shall be
   treated as a separate currency according to the treatment of investments in gold. If, however,
   the direction of the CIU's investment is available, the total long position may be added to that
   the total long open foreign exchange position and the total short position may be added to the
   total short open foreign exchange position. There would be no netting allowed between such
   positions prior to the calculation.
                                                                   98/31/EC Art. 1.7 and Annex .5
                                                                (adapted)
   ⌦ Equity risk ⌫
   (iii) for equity risk, tThe 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 ⌫
   (iv)    for commodity risk, tThe risk-measurement system shall use a separate risk factor at
   least for each commodity in which the institution holds significant positions. The risk-
   measurement system must also capture the risk of less than perfectly correlated movements
   between similar, but not identical, commodities and the exposure to changes in forward prices
   arising from maturity mismatches. It shall also take account of market characteristics, notably
   delivery dates and the scope provided to traders to close out positions;.
                                                                   98/31/EC Art. 1.7 and Annex .5
   14. The competent authorities may allow institutions to use empirical correlations within risk
   categories and across risk categories if they are satisfied that the institution's system for
   measuring correlations is sound and implemented with integrity.
EN                                                89                                                EN
 ---pagebreak---                                                                   93/6/EEC Annex VI (8) (2)
                                                               second sentence (adapted)
                                              ANNEX VI
     ⌦ CALCULATING CAPITAL REQUIREMENTS FOR ⌫ LARGE EXPOSURES
   1. The excess referred to in Article 29 ⌦ 31 ⌫ (b) shall be calculated by selecting those
   components of the total trading exposure to the client or group of clients in question which
   attract the highest specific-risk requirements in Annex I and/or requirements in Annex II, the
   sum of which equals the amount of the excess referred to in Article 29 ⌦ 31 ⌫ (a).
   2. Where the excess has not persisted for more than 10 days, the additional capital
   requirement shall be 200 % of the requirements referred to in paragraph 1, on these
   components.
   3. As from 10 days after the excess has occurred, the components of the excess, selected in
   accordance with paragraph 1, shall be allocated to the appropriate line in column 1 of Table I
   in ascending order of specific-risk requirements in Annex I and/or requirements in Annex II.
   The additional capital requirement shall be equal to the sum of the specific-risk requirements
   in Annex I and/or the Annex II requirements on these components multiplied by the
   corresponding factor in column 2 of Table I.
   ⌦ Table 1 ⌫
                                    Excess over the limits                       Factors
                        (on the basis of a percentage of own funds)
             Up to 40 %                                                         200 %
             From 40 % to 60 %                                                  300 %
             From 60 % to 80 %                                                  400 %
             From 80 % to 100 %                                                 500 %
             From 100 % to 250 %                                                600 %
             Over 250 %                                                         900 %
EN                                                 90                                             EN
 ---pagebreak---                                                                      new
                                               ANNEX VII
                                                TRADING
                                     PART A - TRADING INTENT
   1. Positions/portfolios held with trading intent shall comply with the following requirements:
             (a)   there must be a clearly documented trading strategy for the position/instrument
                   or portfolios, approved by senior management, which shall include expected
                   holding horizon;
             (b)   there must be clearly defined policies and procedures for the active
                   management of the position, which shall include the following:
                   (i)    positions entered into on a trading desk;
                   (ii)   position limits are set and monitored for appropriateness;
                   (iii) dealers have the autonomy to enter into/manage the position within
                          agreed limits and according to the agreed strategy;
                   (iv) positions are reported to senior management as an integral part of the
                          institution’s risk management process;
                   (v)    positions are actively monitored with reference to market information
                          sources and an assessment made of the marketability or hedge-ability of
                          the position or its component risks, including the assessment of, in
                          particular, the quality and availability of market inputs to the valuation
                          process, level of market turnover, sizes of positions traded in the market;
             (c)   there must be clearly defined policy and procedures to monitor the position
                   against the institution’s trading strategy including the monitoring of turnover
                   and sale positions in the institution’s trading book.
                                 PART B - SYSTEMS AND CONTROLS
   1. Institutions shall establish and maintain systems and controls sufficient to provide prudent
   and reliable valuation estimates.
   2. Systems and controls shall include at least the following elements:
             (a)   documented policies and procedures for the process of valuation. This includes
                   clearly defined responsibilities of the 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
EN                                                   91                                               EN
 ---pagebreak---                     prices, procedures for adjusting valuations, month end and ad-hoc verification
                    procedures;
             (b)    clear and independent (i.e. independent of front office) reporting lines for the
                    department accountable for the valuation process.
   The reporting line shall ultimately be to a main board executive director.
   Prudent Valuation Methods
   3. Marking to market is the at least daily valuation of positions at readily available close out
   prices that are sourced independently. Examples include exchange prices, screen prices, or
   quotes from several independent reputable brokers.
   4. When marking to market, the more prudent side of bid/offer shall be used unless the
   institution is a significant market maker in the particular type of financial instrument or
   commodity in question and it can close out at mid market.
   5. Where marking to market is not possible, institutions must mark to model their
   positions/portfolios before applying trading book capital treatment. Marking to model is
   defined as any valuation which has to be benchmarked, extrapolated or otherwise calculated
   from a market input.
   6. The following requirements must be complied with when marking to model:
   (a)       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 daily basis;
   (c)       where available, valuation methodologies which are accepted market practice for
             particular financial instruments or commodities shall be used;
   (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)       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;
   (f)       risk management shall be aware of the weaknesses of the models used and how best
             to reflect those in the valuation output;
   (g)       the model shall be subject to periodic review to determine the accuracy of its
             performance (e.g. assessing the continued appropriateness of assumptions, analysis
             of P&L versus risk factors, comparison of actual close out values to model outputs).
EN                                                  92                                                EN
 ---pagebreak---              For the purposes of point (d), the model shall be developed or approved
             independently of the front office. If shall be independently tested. This includes
             validating the mathematics, the assumptions and the software implementation
   7. Independent price verification should be performed in addition to daily marking to market
   or marking to model. This is the process by which market prices or model inputs are regularly
   verified for accuracy and independence. While daily marking to market may be performed by
   dealers, verification of market prices and model inputs should be performed by a unit
   independent of the dealing room, at least monthly (or, depending on the nature of the
   market/trading activity, more frequently). Where independent pricing sources are not
   available or pricing sources are more subjective, prudent measures such as valuation
   adjustments may be appropriate.
   Valuation adjustments or reserves
   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.
   Standards for less liquid items
   10. Less liquid positions could arise from both market events and institution-related situations
   e.g. concentrated positions and/or stale positions.
   11. Institutions shall consider several factors when determining whether a valuation reserve is
   necessary for less liquid items. These factors include the amount of time it would take to
   hedge out the position/risks within the position, the volatility and average of bid/offer spreads,
   the availability of market quotes (number and identity of market makers) and the volatility
   and average of trading volumes.
   12. When using third party valuations or marking to model, institutions shall consider whether
   to apply a valuation adjustment. In addition, institutions shall consider the need for
   establishing reserves for less liquid position and on an ongoing basis review their continued
   suitability.
   13. When valuation adjustments/reserves give rise to material losses of the current financial
   year, these shall be deducted from an institution’s original own funds according to point (k) of
   Article 57 of Directive [2000/12/EC].
   14. Other profits/losses originating from valuation adjustments/reserves shall be included in
   the calculation of “net trading book profits” mentioned in point (2)(b) of Article 13 and be
   added to/deducted from the additional own funds eligible to cover market risk requirements
   according to such provisions.
EN                                                 93                                                 EN
 ---pagebreak---                                   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;
            (e)   internal transactions shall be carefully monitored.
   Monitoring must be ensured by adequate procedures.
   2. The treatment referred to in paragraph 1 applies without prejudice to the capital
   requirements applicable to the “non-trading book leg” of the internal hedge.
EN                                                 94                                                EN
 ---pagebreak---                                             ANNEX VIII
                                    REPEALED DIRECTIVES
   PART A
   REPEALED           DIRECTIVES         TOGETHER        WITH      THEIR       SUCCESSIVE
   AMENDMENTS
   (referred to in Article 48)
   Council Directive 93/6/EEC of 15 March 1993 on the capital adequacy of investments firms
   and credit institutions
   Directive 98/31/EC of the European Parliament and of the Council of 22 June 1998 amending
   Council Directive 93/6/EEC on the capital adequacy of investment firms and credit
   institutions
   Directive 98/33/EC of the European Parliament and of the Council of 22 June 1998 amending
   Article 12 of Council Directive 77/780/EEC on the taking up and pursuit of the business of
   credit institutions, Articles 2, 5, 6, 7, 8 of and Annexes II and III to Council Directive
   89/647/EEC on a solvency ratio for credit institutions and Article 2 of and Annex II to
   Council Directive 93/6/EEC on the capital adequacy of investment firms and credit
   institutions
   Directive 2002/87/EC of the European Parliament and of the Council of 16 December 2002
   on the supplementary supervision of credit institutions, insurance undertakings and
   investment firms in a financial conglomerate and amending Council Directives 73/239/EEC,
   79/267/EEC, 92/49/EEC, 92/96/EEC, 93/6/EEC and 93/22/EEC, and Directives 98/78/EC and
   2000/12/EC of the European Parliament and of the Council,
             Only Art. 26
   Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on
   markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and
   Directive 2000/12/EC of the European Parliament and of the Council and repealing Council
   Directive 93/22/EEC
             Only Art. 67
   PART B
   DEADLINES FOR IMPLEMENTATION
   (referred to in Article 48)
                     Directive                                  Deadline for implementation
     Council Directive 93/6/EEC                                           1.7.1995
EN                                               95                                           EN
 ---pagebreak---    Directive 98/31/EC         21.7.2000
   Directive 98/33/EC         21.7.2000
   Directive 2002/87/EC       11.8.2004
   Directive 2004/39/EC    Not yet available
   Directive 2004/xx/EC    Not yet available
EN                      96                   EN
 ---pagebreak---                                                                                 new
                                                         ANNEX IX
                                             CORRESPONDANCE TABLE
     This Directive          Directive             Directive          Directive          Directive     Directive
                             93/6/EEC              98/31/EC           98/33/EC          2002/87/EC   2004/39/EC
   Article 1(1) first
   sentence
   Article         1(1) Article 1
   second    sentence
   and (2)
   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   Article 2(3) to (5)
   (e)
   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)  Article 2(15) and     Article 1(1)(b)
   and (l)              (16)
   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   Article   2(19)    to
   (q)                  (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)  Article 7(3)                                                Article 26
   and (b)
   Article 3(3)(c)      Article 7(3)
EN                                                            97                                                 EN
 ---pagebreak---      This Directive         Directive            Directive    Directive  Directive     Directive
                            93/6/EEC             98/31/EC     98/33/EC  2002/87/EC   2004/39/EC
   Article 4           Article 2(24)
   Article 5           Article 3(1) and
                       (2)
   Article 6           Article 3(4)                                                Article 67(2)
   Article 7           Article 3(4a)                                               Article 67(3)
   Article 8           Article 3(4b)                                               Article 67(3)
   Article 9           Article 3(3)
   Article 10          Article 3(5) to (8)
   Article 11          Article 2(6)
   Article 12 first    Article 2(25)
   sub-paragraph
   Article 12 second
   sub-paragraph
   Article 13(1) first Annex V(1) first
   sub-paragraph       sub-paragraph
   Article       13(1) Annex           V(1) Article 1(7) and
   second         sub- second          sub- Annex 4(a)(b)
   paragraph and (2)   paragraph and (2)
   to (5)              to (5)
   Article 14          Annex V(6) and       Annex 4(c)
                       (7)
   Article 15          Annex V(8)
   Article 16          Annex V(9)
   Article 17
   Article 18(1) first Article 4(1) first
   sub-paragraph       sub-paragraph
   Article    18(1)(a) Article 4(1)(i) and  Article 1(2)
   and (b)             (ii)
   Article 18(2) to    Article 4(6) to (8)
   (4)
   Article 19(1)
   Article 19(2)       Article 11(2)
   Article 19(3)
   Article 20
   Article 21          Annex IV
EN                                                         98                                    EN
 ---pagebreak---      This Directive          Directive          Directive    Directive  Directive  Directive
                            93/6/EEC            98/31/EC     98/33/EC  2002/87/EC 2004/39/EC
   Article 22
   Article 23 first    Article 7(5) and
   and second sub-     (6)
   paragraph
   Article 23 third
   sub-paragraph
   Article 24
   Article 25
   Article 26(1)       Article 7(10)       Article 1(4)
   Article 26(2) to    Article    7(11) to
   (4)                 (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 Annex VI(2)
   (c) and next two
   sub-paragraphs
   Article 29(1) last
   sub-paragraph
   Article 29(2)       Annex VI(3)
   Article 30(1) and   Annex VI(4) and
   (2) first sub-      (5)
   paragraph
   Article       30(2)
   second         sub-
   paragraph
   Article 30(3) and   Annex VI(6) and
   (4)                 (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)
EN                                                        99                                 EN
 ---pagebreak---      This Directive         Directive           Directive     Directive  Directive  Directive
                            93/6/EEC            98/31/EC      98/33/EC  2002/87/EC 2004/39/EC
   Article 34
   Article 35(1) to    Article 8(1) to (4)
   (4)
   Article 35(5)       Article 8(5) first  Article 1(5)
                       sentence
   Article 36          Article 9(1) to (3)
   Article 37
   Article 38          Article 9(4)
   Article 39
   Article 40          Article 2(9)
   Article 41
   Article 42(1)(a) to Article 10 first,
   (c)                 second and third
                       indents
   Article    42(1)(d)
   and (e)
   Article 42(1)(f)    Article 10 fourth
                       indent
   Article 42(1)(g)
   Article 43
   Article 44
   Article 45
   Article 46          Article 12
   Article 47
   Article 48
   Article 49
   Article 50          Article 15
   Annex I(1) to (4)   Annex I(1) to (4)
   Annex I(4) last     Article 2(22)
   sub-paragraph
   Annex I(5) to (7)   Annex I(5) to (7)
EN                                                        100                                 EN
 ---pagebreak---       This Directive           Directive            Directive     Directive  Directive  Directive
                               93/6/EEC             98/31/EC      98/33/EC  2002/87/EC 2004/39/EC
   Annex I(8)
   Annex I(9) to (11)     Annex I(8) to (10)
   Annex I(12) to         Annex     I(12)   to
   (14)                   (14)
   Annex I(15) and        Article 2(12)
   (16)
   Annex I(17) to         Annex     I(15)   to
   (41)                   (39)
   Annex I(42) to
   (56)
   Annex II(1) and        Annex II(1) and
   (2)                    (2)
   Annex      II(3)    to
   (11)
   Annex III(1)           Annex III(1) first   Article 1(7) and
                          sub-paragraph        Annex 3(a)
   Annex III(2)           Annex III(2)
   Annex         III(2.1) Annex III(3.1)       Article 1(7) and
   first to third sub-                         Annex 3(b)
   paragraphs
   Annex         III(2.1)
   fourth            sub-
   paragraph
   Annex         III(2.1) Annex III(3.2)       Article 1(7) and
   fifth             sub-                      Annex 3(b)
   paragraph
   Annex        III(2.2), Annex III(4) to (6)  Article 1(7) and
   (3), (3.1)                                  Annex 3(c)
   Annex III(3.2)         Annex III(8)
   Annex III(4)           Annex III(11)
   Annex IV(1) to         Annex VII(1) to      Article 1(7) and
   (20)                   (20)                 Annex 5
   Annex IV(21)           Article 11a          Article 1(6)
   Annex V(1) to          Annex VIII(1) to     Article 1(7) and
   (13) third sub-        (13)(ii)             Annex 5
   paragraph
   Annex           V(13)
   fourth            sub-
   paragraph
EN                                                            101                                 EN
 ---pagebreak---      This Directive        Directive            Directive     Directive  Directive  Directive
                           93/6/EEC             98/31/EC      98/33/EC  2002/87/EC 2004/39/EC
   Annex V(13) fifth Annex                 Article 1(7) and
   sub-paragraph to  VIII(13)(iii)      to Annex 5
   (14)              (14)
   Annex VI          Annex       VI(8)(2)
                     after    the    first
                     sentence
   Annex VII
   Annex VIII
   Annex IX
EN                                                        102                                 EN