WRITTEN NOTICE OPTION DELTA PERMISSION

Transcription

1 WRITTEN NOTICE OPTION DELTA PERMISSION To: Investec Bank plc (FRN: ) ( the firm ) Reference Number: Date: 9 September 2016 DECISIONS 1. In accordance with the discretions afforded to the PRA by Article 329(1) of Regulation 575/2013 of the European Parliament and of the Council of 26 th June 2013 on prudential requirements for credit institutions and investment firms (the CRR ), the PRA has decided to grant the firm the permission to use its own calculations of delta in its calculation of own funds requirements for market risk in respect of options and warrants on the terms and conditions set out in Annex 1 (the Option Delta Permission ). 2. If the firm ceases to comply with the conditions for the granting of the Option Delta Permission set out in Article 329(1) of the CRR, the terms and conditions of the Option Delta Permission set out in Annex 1, the PRA will re-consider the terms and conditions of the Option Delta Permission and the requirements relevant to it, including a revocation of the Option Delta Permission in whole or in part. 3. The Option Delta Permission takes effect on 9 September 2016 and replaces Written Notice reference PROCEDURAL MATTERS 4. The decision which gave rise to the obligation to give this Notice was made by Anna Ghobadian- Grinham, Senior Manager. 5. Details of the Option Delta Permission will be published on the Financial Services Register. PRA CONTACTS 6. For more information concerning this matter generally, the firm should contact their usually supervisory contact. Anna Ghobadian-Grinham, Senior Manager, International Banks Supervision Prudential Regulation Authority - 1 -

2 ANNEX 1 THE OPTION DELTA PERMISSION Definition 1. The Option Delta Permission means that the firm may use its own calculation of delta to calculate, for the legal entities listed in Table 1, on a solo and consolidated basis, the own funds requirements for market risk in relation to the exposures described in paragraph 2 of this Annex in accordance with Article 329(1) of the CRR. Table 1 Investec Bank plc (FRN: ) Solo and consolidated basis 2. In accordance with Article 329(1) of the CRR, the firm may use the Option Delta Permission to calculate the exposure value for the products set out in Table 2, which are either (i) OTC options or (ii) products traded on an exchange for which no delta is available from the exchange concerned. Table 2 Products EQAsianBarrier EQAsianDigiStrip EQAsianDigital EQAsianGapOption EQAsianOption EQAsianOptStrip EQAutocallable EQBarrierOption EQBasketAsianOption EQDigitalOption EQIncomeRoll EQlistedOption EQNoTouch EQNoTouchStrip Description OTC contracts with a Vanilla (Call or Put) payoff, calculated using the average price of the underlying over a set of dates (the averaging dates) and paid conditionally to the Barrier being hit (or not being hit) at given dates through the life of the contract. EQAsianDigital superposition of multiple EQAsianDigital options OTC contracts with a binary Payoff (0 or 1) written on the average of the underlying over a set of dates (the asianing dates). OTC contracts where the payoff is the sum of an EQAsianDigital and an EQAsianOption with the same Expiry and same Strike. OTC contracts with a simple payoff (Call, Put, Straddle) written on the average of the underlying over a set of dates (the asianing dates). EQAsianOptions with different Expiries. The template is equivalent to the superposition of multiple EQAsianOptions Values an Autocallable Equity contract OTC contracts with a European Vanilla payoff (see EQOption) paid conditionally to the Barrier being hit (or not being hit) at given dates throughout the life of the contract. OTC contracts with a simple payoff (Call, Put, Straddle) written on the average return of the underlying basket over a set of dates (the asianing dates). OTC contracts where the buyer receives 1 if at maturity the underlying is above (Call) or below (Put) the Strike price. Values an IncomeRoll Equity contract Values an exchange traded option contract OTC contracts that pay a fixed Coupon at Expiry if the Barrier has not been hit by then. NoTouch options with different Expiries. Each individual NoTouch option pays a Coupon - 2 -

3 EQOption EQRollOver Eqstrategy EQAutocallablePhoenix EQAutocallable EQAsianBarrier EQBarrierOption on its ExpiryDate if the Barrier has not been hit by then. OTC contracts with a simple vanilla payoff (Call, Put, Straddle) that can be exercised in an American or European manner. Values an RollOver Equity contract OTC contracts that describe an Equity Option Strategy. A Strategy consists of a combination of simultaneous buying and/or selling a set of Options that differ in Expiry and/or Strike This is an extension of the existing EQAutocallable contract where the coupon payment is contingent on a barrier (phoenix level) being hit and may be subject to a memory feature. This payoff redeems in the event the underlying finishes above a specified autocall level, on any of a specified set of autocall dates. Additionally, the payoff can include a down & in barrier put option. The finite difference model will be used only for payoffs involving a single underlying. OTC contract with an Asian put/call payoff conditional on a barrier being hit. These can involve up & down knock-in/knock-out barriers. OTC contract with a vanilla put/call payoff conditional on a barrier being hit. These can involve up & down knock-in/knock-out barriers. Table 3 Products FX Barrier DKI FXBarrierDKIStrip FXBarrierDKO FXBarrierDKOStrip FXBarrierKI FXBarrierKIStrip FXBarrierKO FXBarrierKOStrip FXBarrierWinDKI(Mid) Description (Knocked In) monitored over the period between the inception date and the FXBarrierDKI options superposition of multiple FXBarrierDKI Out) monitored over the period between the inception date and the FXBarrierDKO options superposition of multiple FXBarrierDKO the period between the inception date and the expiry date based on the barrier observation frequency. FXBarrierKI options superposition of multiple FXBarrierKI over the period between the inception date and the expiry date based on the barrier observation frequency. FXBarrierKO options superposition of multiple FXBarrierKO (Knocked In) monitored over the period between the barrier start date and the barrier end date based on the barrier observation frequency. This is where neither the barrier start or end date aligns with the inception date/expiry date

4 FXBarrierWinDKI FXBarrierWinDKIStrip(Mid) FXBarrierWinDKIStrip FXBarrierWinDKO(Mid) FXBarrierWinDKO FXBarrierWinDKOStrip(Mid) FXBarrierWinDKOStrip FXBarrierWinKI(Mid) FXBarrierWinKI FXBarrierWinKIStrip(Mid) FXBarrierWinKIStrip FXBarrierWinKO(Mid) FXBarrierWinKO (Knocked In) monitored over the period between the barrier start date and the barrier end date based on the barrier observation frequency. This is where either the barrier start or end date doesn t align with the inception date/expiry date. FXBarrierWinDKI(Mid)options with different Expiries. The template is equivalent to the superposition of multiple FXBarrierWinDKI(Mid) FXBarrierWinDKI superposition of multiple FXBarrierWinDKI Out) monitored over the period between the barrier start date and the barrier end date based on the barrier observation frequency. This is where neither the barrier start or end date aligns with the inception date/expiry date. Out) monitored over the period between the barrier start date and the barrier end date based on the barrier observation frequency. This is where either the barrier start or end date doesn t align with the inception date/expiry date. FXBarrierWinDKO(Mid)options with different Expiries. The template is equivalent to the superposition of multiple FXBarrierWinDKO(Mid) FXBarrierWinDKO superposition of multiple FXBarrierWinDKO the period between the barrier start date and the barrier end date based on the barrier observation frequency. This is where neither the barrier start or end date aligns with the inception date/expiry date. the period between the barrier start date and the barrier end date based on the barrier observation frequency. This is where either the barrier start or end date doesn t align with the inception date/expiry date. FXBarrierWinKI(Mid)options with different Expiries. The template is equivalent to the superposition of multiple FXBarrierWinKI(Mid) FXBarrierWinKI superposition of multiple FXBarrierWinKI over the period between the barrier start date and the barrier end date based on the barrier observation frequency. This is where neither the barrier start or end date aligns with the inception date/expiry date

5 FXBarrierWinKOStrip(Mid) FXBarrierWinKOStrip FXDigiDNT FXDigiNT FXDigiOT FXEuropeanKI FXEuropeanKIStrip FXEuropeanKO FXEuropeanKOStrip FXOption FXOptionStrip FX Asian Option FX Target Redemption Forward (TARF) FX Target Redemption Forward (TARF) Extra over the period between the barrier start date and the barrier end date based on the barrier observation frequency. This is where either the barrier start or end date doesn t align with the inception date/expiry date. FXBarrierWinKO(Mid)options with different Expiries. The template is equivalent to the superposition of multiple FXBarrierWinKO(Mid) FXBarrierWinKO superposition of multiple FXBarrierWinKO OTC contracts where the Notional is paid at expiry if the Lower and Upper Barrier isn t hit monitored over the period between the inception date and the expiry date based on the barrier observation frequency. OTC contracts where the Notional is paid at expiry if the barrier isn t hit monitored over the period between the inception date and the OTC contracts where the Notional is paid at expiry if the Barrier is hit monitored over the period between the inception date and the conditionally on the Barrier being hit (Knocked In) at expiry. FXEuropeanKI options superposition of multiple FXEuropeanKI conditionally on the Barrier not being hit (Knocked Out) at expiry. FXEuropeanKO superposition of multiple FXEuropeanKO OTC European Vanilla Call or Put FXOptions with different Expiries. The template is equivalent to the superposition of multiple FXOptions. OTC contract with a simple payoff (Call, Put, Straddle) written on the average value of the FX underlying over a set of dates (the asianing dates). OTC contract involving a strip of FX forwards, each at a fixed strike. If the total payout on the contract exceeds a specified target amount the contract terminates. OTC contract involving a strip of FX forwards, each at a fixed strike. lf the total payout on the contract exceeds a specified target amount the contract terminates. The TARF Extra has an additional feature, where if the underlying FX rate breaches a fixed barrier, the future unsettled FX forwards are cancelled and the contract terminates