• PRU 3.15 PRU 3.15 Calculation of Capital Resources

    • PRU 3.15.1

      This Section applies to an Authorised Person in any Category.

    • PRU 3.15.2

      The total of Capital Resources is derived according to the following formula:

      T1 Capital + T2 Capital = Capital Resources

      where:

      (a) "T1 Capital" represents Tier 1 capital, that being the sum of CET1 Capital and AT1 Capital;
      (b) "CET1 Capital" represents Common Equity Tier 1 capital assessed in accordance with Section 3.10;
      (c) "AT1 Capital" represents Additional Tier 1 capital assessed in accordance with Section 3.11; and
      (d) "T2 Capital" represents Tier 2 capital assessed in accordance with Section 3.12.

    • PRU 3.15.3

      An Authorised Person must calculate its Capital Resources in accordance with the table below and the provisions in Sections 3.9 to 3.12.

      (A1) Elements of Common Equity Tier 1 (CET1) Capital
      (A2) Adjustments to/deductions from CET1 Capital
      (A3) CET1 Capital = A1 — A2
       
      (A4) Elements of Additional Tier 1 (AT1) Capital
      (A5) Deductions from AT1 Capital
      (A6) AT1 Capital = A4 — A5
       
      (A7) Tier 1 (T1) Capital = A3 + A6
       
      (A8) Elements of Tier 2 (T2) Capital
      (A9) Deductions from T2 Capital
      (A10) Tier 2 (T2) Capital = A8 — A9
       
      (A11) Capital Resources = A7 + A10

    • T2 regulatory deductions and exclusions

      • PRU 3.15.4

        The Capital Resources of an Authorised Person to which this section applies is defined as the sum of its CET1 Capital, AT1 Capital and T2 Capital.

    • Deductions relating to holdings of own T2 Capital instruments

      • PRU 3.15.5

        For the purposes of Rule 3.15.4(a), an Authorised Person must calculate holdings of its own T2 Capital instruments on the basis of the gross long positions subject to the following exceptions:

        (a) an Authorised Person may calculate the amount of holdings in the Trading Book on the basis of the net long position provided the long and short positions are in the same underlying Exposure and the short positions involve no Counterparty Risk;
        (b) an Authorised Person must determine the amount to be deducted for indirect holdings in the Trading Book of own T2 Capital instruments that take the form of holdings of index Securities by calculating the underlying Exposure to own T2 Capital instruments in the indices; and
        (c) an Authorised Person may net gross long positions in own T2 Capital instruments in the Trading Book resulting from holdings of index Securities against short positions in own T2 instruments resulting from short positions in the underlying indices, including where those short positions involve Counterparty Risk.

    • Deductions relating to T2 Capital instruments in Relevant Entities

      • PRU 3.15.6

        For the purposes of Rules 3.15.4(b), (c) and (d), the amount of holdings of T2 Capital instruments and other capital instruments of Relevant Entities to be deducted must be calculated, subject to 3.15.7, on the basis of the gross long positions.

      • PRU 3.15.7

        For the purposes of Rules 3.15.4(c) and (d), an Authorised Person must make the deductions in accordance with the following:

        (a) the holdings in the Trading Book of the capital instruments of Relevant Entities must be calculated on the basis of the net long position in the same underlying Exposure provided the maturity of the short position matches the maturity of the long position or has a residual maturity of at least one year; and
        (b) the amount to be deducted for indirect holdings in the Trading Book of the capital instruments of Relevant Entities that take the form of holdings of index Securities must be determined by calculating the underlying Exposure to the capital instruments of the Relevant Entities in the indices.

    • T2 deductions relating to insignificant investment in a Relevant Entity

      • PRU 3.15.8

        (1) For the purposes of Rule 3.15.4(c), an Authorised Person must calculate the applicable amount to be deducted by multiplying the amount referred to in (a) by the factor derived from the calculation referred to in (b):
        (a) the amount referred to in Rule 3.13.16(1)(a);
        (b) the amount of direct and indirect holdings by the Authorised Person of the T2 Capital instruments of Relevant Entities divided by the aggregate amount of all direct and indirect holdings by the Authorised Person of the CET1, AT1 and T2 Capital instruments of those Relevant Entities.
        (2) An Authorised Person must exclude Underwriting positions held for five working days or fewer from the amount referred to in Rule 3.13.16(1)(a) and from the calculation of the factor referred to in (1)(b).
        (3) An Authorised Person must determine the portion of holdings of T2 Capital instruments that is to be deducted by dividing the amount specified in (a) by the amount specified in (b):
        (a) the amount of holdings required to be deducted pursuant to (1)(a);
        (b) the aggregate amount of direct and indirect holdings by the Authorised Person of the capital instruments of Relevant Entities in which the Authorised Person does not have a significant investment.

    • Exclusion in relation to Managing a Profit Sharing Investment Account

      • PRU 3.15.9

        An Authorised Person must exclude from T2 Capital any amount by which the total of the Profit Equalisation Reserve and the Investment Risk Reserve exceeds the Displaced Commercial Risk Capital Requirement calculated in accordance with the IFR rules.