Prudential Regulation Authority Rulebook

8.1

Where a firm has sold securities to or purchased securities from a CRD credit institution or a MiFID investment firm and such sale or purchase was made subject to an agreement that the CRD credit institution or MiFID investment firm would, either on demand by the firm or within six months of such sale or purchase, subsequently sell to or purchase from the firm equivalent securities, then if at the relevant date such subsequent sale or purchase has not taken place and the conditions specified in 8.2 and either 8.3 or 8.4 (as appropriate) are satisfied, the firm:

1. (1) must value:
1. (a) securities sold by it under such agreement as if such securities had been retained by it, and
2. (b) assets provided by it as consideration for the purchase of securities under such agreement as if such consideration had not been provided by it; and
2. (2) must not ascribe a value to:
1. (a) any consideration received for the sale of securities under such agreement (or any assets purchased by it with such consideration) up to the limit of the value of the securities sold; or
2. (b) any securities purchased by it under such agreement (or any assets purchased with the proceeds of the sale of any such securities) up to the limit of the consideration (valued in accordance with generally accepted accounting practice or other generally accepted methods appropriate to friendly societies) provided by it.

8.2

The condition specified in this Chapter is that, where at any time after the sale or purchase of securities by the firm under an agreement described in 8.1 either:

1. (1) the amount of the consideration received by the firm for the sale of the securities fell below the value of the securities sold by it; or
2. (2) the value of the securities purchased by the firm fell below the value of the consideration provided by it,

by more than 2.5% of the value of the securities sold or purchased (as the case may be), the firm demanded additional consideration equal to the shortfall and such demand was complied with before the end of the working day following the day on which the shortfall occurred.

8.3

The conditions specified in this Chapter are that, if the firm purchases securities from a CRD credit institution or a MiFID investment firm and the consideration provided by the firm is other than by way of sale of securities:

1. (1) the securities purchased are:
1. (a) approved securities,
2. (b) listed securities, or
3. (c) securities issued by a CRD credit institution; and
2. (2) the securities purchased do not include:
1. (a) securities (other than approved securities) issued by the same counterparty whose aggregate value amounts to more than 15% of the value of the securities purchased; or
2. (b) if the condition in (2)(a) is not satisfied, securities whose value when aggregated with the firm’s existing exposure to assets of the same description or to the same counterparty would exceed the appropriate permitted asset exposure limit or permitted counterparty exposure limit as determined in accordance with 17 to 29.

8.4

The conditions specified in this Chapter are that, if the firm sells securities to a CRD credit institution or a MiFID investment firm:

1. (1) the consideration provided by the CRD credit institution or MiFID investment firm is:
1. (a) cash;
2. (b) approved securities;
3. (c) listed securities;
4. (d) securities issued by a CRD credit institution;
5. (e) a charge over assets set out in (a) to (d);
6. (f) a letter of credit established with a CRD credit institution; or
7. (g) a guarantee provided by a CRD credit institution; and
2. (2) the consideration :
1. (a) except to the extent that the condition in (2)(b) is satisfied, when aggregated with the firm’s existing exposure to assets of the appropriate description or to the relevant counterparty, does not exceed the appropriate permitted asset exposure limit or permitted counterparty exposure limit as determined in accordance with 17 to 29; or
2. (b) does not include :
1. (i) securities (other than approved securities) issued by;
2. (ii) letters of credit established with;
3. (iii) guarantees provided by,
4. (iv) cash deposited with:
5. (v) a charge over cash deposited with; or
6. (vi) a charge over securities issued by,
3. the same counterparty in excess of 15% of the total consideration; and
4. (3) the consideration to be provided by the firm for the subsequent purchase of equivalent securities is:
1. (a) where the consideration for the original purchase by the CRD credit institution or MiFID investment firm was (wholly or in part) cash, cash denominated in the same currency; and
2. (b) where the consideration was (wholly or in part) securities, securities equivalent to the securities provided by way of consideration.

8.5

For the purposes of this Chapter, where the firm has received consideration in respect of a sale of the kind described in 8.1, in addition to any other exposure to assets or to a counterparty:

1. (1) if such consideration takes the form of a letter of credit established with, or a guarantee provided by, a CRD credit institution, it must be considered to give rise to exposure to that institution by the amount of the consideration;
2. (2) if such consideration takes the form of a charge over securities, it must be considered to give rise to exposure to securities of the same description and to the issuer of those securities by the amount of the consideration; and
3. (3) if such consideration takes the form of cash deposited with another party for the benefit of the firm, or a charge over cash deposited with another party, it must be considered to give rise to exposure to that party by the amount of the consideration.

8.6

For the purposes of this Chapter, the amount of any consideration must be:

1. (1) where the consideration is a letter of credit established with a CRD credit institution, the lower of the amount made available under the letter of credit and the value of the assets sold;
2. (2) where the consideration is a guarantee provided by a CRD credit institution, the lower of the amount of the guarantee and the value of the assets sold; and
3. (3) where the consideration takes the form of assets of any of the types mentioned in 8.4(1)(a) to (d), or a charge over such assets, the value of the assets as determined in accordance with this Part.

8.7

Where a firm has entered into a number of agreements described in 8.1, for the purposes of 8.3 and 8.4:

1. (1) any or all agreements under which the subsequent sale or purchase has not taken place at the relevant date may be treated as one agreement; and
2. (2) in such case, the 15% limits referred to in 8.3(2)(a) and 8.4(2)(b) must be calculated by reference to the aggregate of the value of the securities purchased under 8.3 and the amount of any consideration under 8.4.