• Free delivery transactions

    • PRU A4.6.8

      An Authorised Person must calculate the Credit RWA in accordance with the table in Rule A4.6.11 for free delivery transactions in both the Trading and Non-Trading Book where it has:

      (a) delivered Securities or commodities before receiving payment;
      (b) paid for Securities or commodities before receiving the items purchased; or
      (c) entered into a foreign exchange contract undertaken in the spot market or contracted for forward settlement and has released funds to its Counterparty but has not yet received the funds in the other currency.

    • PRU A4.6.9 PRU A4.6.9

      If the settlement of the transaction is to be effected across a national border, Credit RWA needs to be calculated only when more than one business day has elapsed since the firm has made the relevant payment or delivery.

      • Guidance

        In respect of free delivery transactions referred to in Rule A4.6.9, if the dates when two payment legs are made are the same according to the time zones where each payment is made, they are deemed to have been settled on the same day.

    • PRU A4.6.10

      For a free delivery transaction an Authorised Person must determine its exposure E after the end of the first contractual payment or delivery date as follows:

      (a) if an Authorised Person has delivered Securities or Commodities or foreign exchange funds to a Counterparty and has not received payment:

      E = CV due to the Authorised Person

      (b) if an Authorised Person has made payment of CV to a Counterparty for commodities or Securities and has not received them:

      E = CV – MV of the Securities, commodities or foreign exchange funds due to it

    • PRU A4.6.11

      The Credit RWA in respect of free delivery transactions are to be calculated in accordance with the following table:

       

      Transaction stage Treatment
      Up to first contractual payment or delivery leg No calculation required
      From first contractual payment or delivery leg up to four business days after second contractual payment or delivery leg Treat as an exposure
      From five business days post contractual payment or delivery leg until extinction of the transaction Treat as an exposure with a risk-weight of 1000%

       

    • PRU A4.6.12

      An Authorised Person must treat an Exposure in accordance with the relevant provisions of Chapter 4.

    • PRU A4.6.13

      If the Authorised Person considers the total amount of the exposures resulting from free delivery transactions to be immaterial it may apply a risk weight of 100% to these exposures, except where a risk weight of 1000% is applied in accordance with Rule A4.6.11.