Document ID: chunk:federal_register_of_legislation:F2023C00406:body:0:p42
Version: federal_register_of_legislation:F2023C00406
Segment Type: other
Provision Reference: 
Character Range: 105704–109151

a gross settlement system that has all of the following characteristics would meet the net settlement criterion in paragraph 42(b):
(a) financial assets and financial liabilities eligible for set-off are submitted at the same point in time for processing;
(b) once the financial assets and financial liabilities are submitted for processing, the parties are committed to fulfil the settlement obligation;
(c) there is no potential for the cash flows arising from the assets and liabilities to change once they have been submitted for processing (unless the processing fails—see (d) below);
(d) assets and liabilities that are collateralised with securities will be settled on a securities transfer or similar system (for example, delivery versus payment), so that if the transfer of securities fails, the processing of the related receivable or payable for which the securities are collateral will also fail (and vice versa);
(e) any transactions that fail, as outlined in (d), will be re-entered for processing until they are settled;
(f) settlement is carried out through the same settlement institution (for example, a settlement bank, a central bank or a central securities depository); and
(g) an intraday credit facility is in place that will provide sufficient overdraft amounts to enable the processing of payments at the settlement date for each of the parties, and it is virtually certain that the intraday credit facility will be honoured if called upon.
AG39 The Standard does not provide special treatment for so-called 'synthetic instruments', which are groups of separate financial instruments acquired and held to emulate the characteristics of another instrument. For example, a floating rate long-term debt combined with an interest rate swap that involves receiving floating payments and making fixed payments synthesises a fixed rate long-term debt. Each of the individual financial instruments that together constitute a 'synthetic instrument' represents a contractual right or obligation with its own terms and conditions and each may be transferred or settled separately. Each financial instrument is exposed to risks that may differ from the risks to which other financial instruments are exposed. Accordingly, when one financial instrument in a 'synthetic instrument' is an asset and another is a liability, they are not offset and presented in an entity's statement of financial position on a net basis unless they meet the criteria for offsetting in paragraph 42.
AG40 [Deleted]

Illustrative examples
Contents
          from paragraph
          ACCOUNTING FOR CONTRACTS ON EQUITY INSTRUMENTS OF AN ENTITY                                               IE1
          Example 1: Forward to buy shares                                                                          IE2
          Example 2: Forward to sell shares                                                                         IE7
          Example 3: Purchased call option on shares                                                                IE12
          Example 4: Written call option on shares                                                                  IE17
          Example 5: Purchased put option on shares                                                                 IE22
          Example 6: Written put option on shares                                                                   IE27
          ENTITIES SUCH AS MUTUAL FUNDS