3
Netting: Convertible Bonds
3.1
For the purposes of Article 327(2) of the CRR, the netting of a convertible bond and an offsetting position in the instrument underlying is permitted. The convertible bond shall be:
- (a) treated as a position in the equity into which it converts; and
- (b) the firm's own funds requirement for the general and specific risk in its equity instruments shall be adjusted by making:
- (i) an addition equal to the current value of any loss which the firm would make if it did convert to equity; or
- (ii) a deduction equal to the current value of any profit which the firm would make if it did convert to equity (subject to a maximum deduction equal to the own funds requirements on the notional position underlying the convertible bond).
- 01/01/2014