§402.2a. Appendix A—Calculation of market risk haircut for purposes of § 402.2(g)(2).
17 C.F.R. § 402.2a
The market risk haircut is the sum of the Treasury market risk haircut and the other securities haircut, calculated as follows.
Treasury market risk haircut. The “Treasury market risk haircut” equals the sum of the total governments offset portion haircut, the total futures and options offset haircut, the total hedging disallowance haircut, and the residual net position haircut, calculated with respect to financings and positions in Treasury market risk instruments, except to the extent that a permissible election is made pursuant to paragraph (b)(1) of this section to include qualified positions in the calculation of the other securities haircut.
Total governments offset portion haircut. The “total governments offset portion haircut” equals the sum of the governments offset portion haircuts calculated for each category in § 402.2(f)(1). The “governments offset portion haircuts” equal, for each category in § 402.2(f)(1), the product of the offset haircut factor for that category set out in § 402.2(f)(2) and the smaller of the absolute values of the gross long immediate position or gross short immediate position for that category. Schedules B and C in paragraph (c) of this section can be used to make this calculation.
The “gross long immediate position” for purposes of this part equals, for each category except categories MB and AR in § 402.2(f)(1), the sum of the market values of each long immediate position in Treasury market risk instruments with a term to maturity (or, in the case of a floating rate note, the time to the next scheduled interest rate adjustment or the term to maturity, whichever is less) corresponding to such category, the contract values of each reverse repurchase agreement with a term to maturity or time to the next scheduled interest rate adjustment, whichever is less, corresponding to that category, and the values of the cash collateral of each security borrowing with a term to maturity or time to next scheduled interest rate adjustment, whichever is less, corresponding to such category.
In the case of category MB, the “gross long immediate position” equals the sum of the market values of all long immediate positions in fixed rate mortgage-backed securities which are Treasury market risk instruments.
In the case of category AR, the “gross long immediate position” equals the sum of the market values of all long immediate positions in adjustable rate mortgage-backed securities which are Treasury market risk instruments.
The “gross short immediate position” for purposes of this section equals, for each category except categories MB and AR in § 402.2(f)(1), the sum of the market values of each short immediate position in Treasury market risk instruments with a term to maturity (or, in the case of a floating rate note, the time to the next scheduled interest rate adjustment or the term to maturity, whichever is less) corresponding to such category, and the values of funds received from each financing transaction (including repurchase agreements, securities lending secured by cash collateral, and term financings, but excluding subordinated debt which meets the requirements of § 240.15c3-1d of this title modified as provided in § 402.2d) with a term to maturity or time to the next scheduled interest rate adjustment, whichever is less, corresponding to that category.
In the case of category MB, the “gross short immediate position” equals the sum of the market values of all short immediate positions in fixed rate mortgage-backed securities which are Treasury market risk instruments.
In the case of category AR, the “gross short immediate position” equals the sum of the market values of all short immediate positions in adjustable rate mortgage-backed securities which are Treasury market risk instruments.
The term long immediate position in a Treasury market risk instrument means, for purposes of this part:
The net long position in a Treasury market risk instrument as of the trade date, except when the settlement date, in the case of a Treasury market risk instrument except a mortgage-backed security, is scheduled more than five business days in the future, and, in the case of a mortgage-backed security, more than thirty calendar days in the future;
The net long when-issued position in a marketable U.S. Treasury security between announcement and issue date;
The net long when-issued position in a government agency or a government-sponsored agency debt security between release date and issue date; and
The net long when-issued position in a security described in § 402.2(e)(1)(vi) between announcement date and issue date.
The term short immediate position on a Treasury market risk instrument means, for purposes of this part:
The net short position in a Treasury market risk instrument as of the trade date, except when the settlement date, in the case of a Treasury market risk instrument except a mortgage-backed security, is scheduled more than five business days in the future, and, in the case of a mortgage-backed security, more than thirty calendar days in the future;
The net short when-issued position in a marketable U.S. Treasury security between announcement and issue date;
The net short when-issued position in a government agency or a government-sponsored agency debt security between release date and issue date; and
The net short when-issued position in a security described in § 402.2(e)(1)(vi) between announcement date and issue date.
Net immediate position interim haircut. The “net immediate position interim haircut” equals, for each category in § 402.2(f)(1), the product of the net position haircut factor for that category and the sum of the gross long immediate position and the gross short immediate position for that category. For purposes of this part, a gross long immediate position shall be a positive number and a gross short immediate position shall be a negative number. Schedules B and C in paragraph (c) of this section can be used to make this calculation.
Total futures and options offset haircut. The “total futures and options offset haircut” equals the sum of the futures and options offset haircuts calculated for each category in § 402.2(f)(1). The “futures and options offset haircut” equals, for each category in § 402.2(f)(1), the product of a futures and options offset factor of 20 percent and the smaller of the absolute values of the positive and negative aggregate interim haircuts for that category. Schedule D in paragraph (c) of this section can be used to make this calculation.
Positive aggregate interim haircut. The “positive aggregate interim haircut” equals, for each category in § 402.2(f)(1), the sum of the positive net immediate position interim haircut (see paragraph (a)(2) of this section), the gross long futures and forward interim haircut, and the positive gross options interim haircut for that category. Schedule D in paragraph (c) of this section can be used to make this calculation.
Gross long futures and forward interim haircut. The “gross long futures and forward interim haircut” equals, for each category in § 402.2(f)(1), the sum of the interim haircuts on each long futures position and long forward position placed, in the case of a futures or forward contract which is a Treasury market risk instrument except those on mortgage-backed securities, in the category corresponding to the sum of the term to maturity of the contract and the term to maturity of the underlying instrument at the time of the maturity of the contract or, in the case of a futures or forward contract on Treasury market risk mortgage-backed securities, in the category corresponding to the type of Treasury market risk mortgage-backed security.
(1) For purposes of this part, the interim haircut on each long futures position and each long forward position is the product of the net position haircut factor for the category corresponding to, in the case of a futures or forward contract which is a Treasury market risk instrument except those on mortgage-backed securities, the maturity of the underlying instrument at the time of the maturity of the contract or, in the case of a futures or forward contract on Treasury market risk mortgage-backed securities, the type of Treasury market risk mortgage-backed security and the value of the long futures position or long forward position evaluated at the current market price for such contract.
(2) For purposes of this part, the gross long futures and forward interim haircut shall be a positive number.
Positive gross options interim haircut. The “positive gross options interim haircut” equals, for each category in § 402.2(f)(1), the sum of the interim haircuts on each purchased call and sold put placed in the category in which the underlying instrument would be placed.
(1) For purposes of this part, the “interim haircut on each purchased call and sold put” equals the lesser of the market value of the option or, (i) in the case of an option on a cash instrument, the product of the net position haircut factor for the category to which the underlying cash instrument corresponds and the market value of the underlying cash instrument or, (ii) in the case of an option on a futures contract, the interim haircut on the underlying futures contract.
(2) For purposes of this part, the positive gross options interim haircut is a positive number.
Negative aggregate interim haircut. The “negative aggregate interim haircut” equals, for each category in § 402.2(f)(1), the sum of the negative net immediate position interim haircut (see paragraph (a)(2) of this section), the gross short futures and forward interim haircut, and the negative gross options interim haircut for that category. Schedule D in paragraph (c) of this section can be used to make this calculation.
Gross short futures and forward interim haircut. The “gross short futures and forward interim haircut” equals, for each category in § 402.2(f)(1), the sum of the interim haircuts on each short futures position and short forward position placed, in the case of a futures or forward contract which is a Treasury market risk instrument except those on mortgage-backed securities, in the category corresponding to the sum of the term to maturity of the contract and the term to maturity of the underlying instrument at the time of the maturity of the contract or, in the case of a futures or forward contract on Treasury market risk mortgage-backed securities, in the category corresponding to the type of Treasury market risk mortgage-backed security.
(1) For purposes of this part, the “interim haircut on each short futures position and each short forward position” is the product of the net position haircut factor for the category corresponding to, in the case of a futures or forward contract which is a Treasury market risk instrument except those on mortgage-backed securities, the maturity of the underlying instrument at the time of the maturity of the contract or, in the case of a futures or forward contract on Treasury market risk mortgage-backed securities, the type of Treasury market risk mortgage-backed security and the value of the short futures position or short forward position evaluated at the current market price for such contract.
(2) For purposes of this part, the gross short futures and forward interim haircut is a negative number.
Negative gross options interim haircut. The “negative gross options interim haircut” equals, for each category in § 402.2(f)(1), the sum of the interim haircuts on each sold call and purchased put placed in the category in which the underlying instrument would be placed.
(1) For purposes of this part, the “interim haircut on each sold call and purchased put” equals the lesser of the market value of the option or, (i) in the case of an option on a cash instrument, the product of the net position haircut factor for the category to which the underlying cash instrument corresponds and the market value of the underlying cash instrument or, (ii) in the case of an option on a futures contract, the interim haircut on the underlying futures contract.
(2) For purposes of this part, the negative gross options interim haircut is a negative number.
Total hedging disallowance haircut. The “total hedging disallowance haircut” equals the sum of the hedging disallowance haircuts calculated pursuant to each netting of qualified netting interim haircuts. The “hedging disallowance haircut” equals the absolute value of the product of the applicable category pair hedging disallowance haircut factor specified in § 402.2(f)(3) and the smaller in absolute value of any two qualified netting interim haircuts, netted in accordance with the provisions of this paragraph. Schedule E in paragraph (c) of this section can be used to make this calculation.
Qualified netting interim haircut. The term “qualified netting interim haircut” means a residual position interim haircut or a net residual position interim haircut.
Residual position interim haircut. The “residual position interim haircut” equals, for each category in § 402.2(f)(1), the sum of the positive aggregate interim haircut and the negative aggregate interim haircut corresponding to the category, calculated in accordance with the provisions of paragraph (a)(3) of this section.
(1) Net residual position interim haircut. The “net residual position interim haircut” equals, for any two categories between which netting is permitted, the sum of (i) the residual position interim haircuts calculated for those categories, in the case of the category of the larger in absolute value of the two residual position interim haircuts being netted, and (ii) zero, in the case of the category of the smaller in absolute value of the two residual position interim haircuts being netted.
(2) For the purposes of this paragraph (a)(4), netting is permitted only between categories for which a category pair hedging disallowance haircut factor has been specified in paragraph § 402.2(f)(3).
Net residual position interim haircuts shall be substituted for the residual position interim haircuts in the respective categories in which they have been placed and shall be considered as if they were residual position interim haircuts. New net residual position interim haircuts may continue to be calculated until for each category pair for which netting is permitted at least one of the two qualified netting interim haircuts is zero or both qualified netting interim haircuts are of the same sign.
Residual net position haircut. The “residual net position haircut” equals the sum of the absolute values of all qualified netting interim haircuts remaining in each category after the completion of the calculation of permissible nettings described in paragraph (a)(4) of this section. Schedule E in paragraph (c) of this section can be used to make this calculation.
Other securities haircut. The “other securities haircut” equals the sum of all deductions specified in § 240.15c3-1 (c)(2)(vi) and (c)(2)(viii) of this title and §§ 240.15c3-1a and 240.l5c3-1b of this title for long and short positions in securities, futures contracts, forward contracts, options, and other inventory which are not Treasury market risk instruments as defined in § 402.2(e).
A registered government securities broker or dealer may elect to exclude from its calculation of the Treasury market risk haircut and include in its calculation of the other securities haircut long and short positions in Treasury market risk instruments if such positions form part of a hedge against long and short positions in securities, futures contracts, forward contracts, or options which are not Treasury market risk instruments. Only the portion of the total position in a Treasury market risk instrument that forms part of such hedge may be excluded from the calculation of the Treasury market risk haircut and included in the calculation of the other securities haircut.
For purposes of this paragraph (b), a gross long or short position in Treasury market risk instruments shall be considered part of a hedge if the inclusion of such position in the calculation of the other securities haircut would serve to reduce said haircut.
For purposes of this paragraph (b) as it relates to § 240.15c3-1(c)(2)(vi)(M) (“undue concentration”), references to “10 percent of the “net capital'” shall be understood to refer to 10 percent of the liquid capital and references to “Appendix (D) (17 CFR 240.15c3-1d)” shall be understood to refer to such section as modified by § 402.2d.
Schedules. This paragraph sets forth schedules which may be used by government securities brokers or dealers in the calculation of total haircuts as required by this part 402. The appropriate regulatory agency or designated examining authority may specify other substantially similar forms required to be used by government securities brokers or dealers in the calculation of such haircuts.
Notes, amendments, and revision history
Amendments
[52 FR 27931, July 24, 1987, as amended at 53 FR 28985, Aug. 1, 1988; 71 FR 54411, Sept. 15, 2006; 79 FR 38455, July 8, 2014]
Authority
Authority: 15 U.S.C. 78o-5(b)(1)(A), (b)(4), Pub. L. 111-203, 124 Stat. 1376.
Source
Source: 52 FR 27931, July 24, 1987, unless otherwise noted.
Amendments
[52 FR 27931, July 24, 1987, as amended at 53 FR 28985, Aug. 1, 1988; 71 FR 54411, Sept. 15, 2006; 79 FR 38455, July 8, 2014]