1.An institution shall be required to hold own funds, as set out in Table 2, where the following occurs:
it has paid for securities, foreign currencies or commodities before receiving them or it has delivered securities, foreign currencies or commodities before receiving payment for them;
in the case of cross-border transactions, one day or more has elapsed since it made that payment or delivery.
Capital treatment for free deliveries
| Column 1 | Column 2 | Column 3 | Column 4 |
|---|---|---|---|
| Transaction Type | Up to first contractual payment or delivery leg | From first contractual payment or delivery leg up to four days after second contractual payment or delivery leg | From 5 business days post second contractual payment or delivery leg until extinction of the transaction |
| Free delivery | No capital charge | Treat as an exposure | Treat as an exposure risk weighted at 1 250 % |
2.In applying a risk weight to free delivery exposures treated according to Column 3 of Table 2, an institution using the Internal Ratings Based approach set out in Part Three, Title II, Chapter 3 may assign PDs to counterparties, for which it has no other non-trading book exposure, on the basis of the counterparty's external rating. Institutions using own estimates of ‘ LGDs ’ may apply the LGD set out in Article 161(1) to free delivery exposures treated according to Column 3 of Table 2 provided that they apply it to all such exposures. Alternatively, an institution using the Internal Ratings Based approach set out in Part Three, Title II, Chapter 3 may apply the risk weights of the Standardised Approach, as set out in Part Three, Title II, Chapter 2 [F1of this Regulation and Articles 132a to 132c of Chapter 3 of the Standardised Approach and Internal Ratings Based Approach to Credit Risk (CRR) Part of the PRA Rulebook] provided that it applies them to all such exposures or may apply a 100 % risk weight to all such exposures.
If the amount of positive exposure resulting from free delivery transactions is not material, institutions may apply a risk weight of 100 % to these exposures, except where a risk weight of 1 250 % in accordance with Column 4 of Table 2 in paragraph 1 is required.
3.As an alternative to applying a risk weight of 1 250 % to free delivery exposures according to Column 4 of Table 2 in paragraph 1, institutions may deduct the value transferred plus the current positive exposure of those exposures from Common Equity Tier 1 items in accordance with point (k) of Article 36(1).]
Textual Amendments