FOREIGN EXCHANGE CURRENCY GROUPINGS

Size: px

Start display at page:

Download "FOREIGN EXCHANGE CURRENCY GROUPINGS"

Caitlin Holt
5 years ago
Views:

1 FOREIGN EXCHANGE CURRENCY GROUPINGS APPENDIX A As at June 12, 1996 The currency groups for the purposes of IDA Regulation 100.2(d) are as follows, until amended, supplemented or margin surcharge notice issued from time to time by the SROs: Country IMF EMS Daily Quoted Listed Future on Volatility Member ERM Spot Rate Recognized Range Participant Published Exchange Futures Acceptable GROUP 1 United States Yes No Yes Yes Yes GROUP 2 Australia Yes Yes Yes Yes Yes Belgium Yes Yes Yes No Yes Denmark Yes Yes Yes No Yes France Yes Yes Yes No Yes Germany Yes Yes Yes Yes Yes Ireland Yes Yes Yes No Yes Japan Yes No Yes Yes Yes Luxembourg Yes Yes Yes No Yes Mexico Yes No Yes Yes Yes Netherlands Yes Yes Yes No Yes Portugal Yes Yes Yes No Yes Spain Yes Yes Yes No Yes Switzerland Yes No Yes Yes Yes United Kingdom Yes No Yes Yes Yes European Currency Unit 1 NA Yes Yes No Yes GROUP 3 Austria Yes No Yes No Yes Czech Republic Yes No Yes No Yes Finland Yes No Yes No Yes Greece Yes No Yes No Yes Hong Kong Yes No Yes No Yes Indonesia Yes No Yes No Yes Italy Yes No Yes No Yes Malaysia Yes No Yes No Yes New Zealand Yes No Yes No Yes Norway Yes No Yes No Yes Singapore Yes No Yes No Yes Sweden Yes No Yes No Yes GROUP 4 All other currencies 1 ECU - Primary intervention currency for members of EMS and ERM.

2 EXHIBIT 1 As at March 31, 199x UNHEDGED FOREIGN CURRENCIES MARGIN EXAMPLE ABC CO. ASSUMPTIONS: Country US UK Currency Unit Dollar (USD) Pounds Spot rate at reporting date Currency Group 1 2 Monetary Assets: Securities owned (Sovereign debt 3 years to maturity) 50,000 25,000 Client s Accounts 20,000 0 Broker dealer trading balance 0 0 Deposits with Acceptable Clearing Corporations 0 5,000 Total 70,000 USD 30,000 POUNDS Non-Monetary Assets: Assets acquired under capital leases 5,000 0 Total 5,000 USD 0 POUNDS Monetary Liabilities: Broker dealer trading balance (5,000) 0 Repurchase liability - fixed term 30 days (25,000) (10,000) Subordinated Loan (30,000) 0 Total (60,000) USD (10,000) POUNDS Summary of forward and future contract transactions as at March 31, 199x: 1. Sold UK 10,000 vs. USD 3 month Sold UK 10,000 vs. USD 1 month Bought CDN 20,000 Future vs. USD 3 month Sold USD 10,000 vs. CDN 1 month Sold UK 5,000 vs. USD 30 month Sold USD 20,000 vs. CDN 23 month Sold UK 10,000 vs. USD 25 month 1.85 Other Information: Net allowable assets net of minimum capital is $300,000

3 UNHEDGED AND TERM WEIGHTING CALCULATIONS ABC CO. CURRENCY GROUP 1 CURRENCY GROUP 2 US - Dollar Unhedged Term Term UK - Pounds Sterling Unhedged Term Term Foreign (days) Weighted Foreign (days) Weighted Exchange (days/365) Exchange (days/365) Positions Positions TWO YEARS AND UNDER MONETARY ASSETS: TWO YEARS AND UNDER MONETARY ASSETS: Securities Owned 50, Securities Owned 25, Client receivables 20, Client receivables Broker receivables Broker receivables Deposit with clearing corp Deposit with clearing corp. 5, Total 70,000 0 Total 30,000 0 TOTAL LONG FORWARD/FUTURES: TOTAL LONG FORWARD/FUTURES: 1 month forward 2 16, , month forward 1 17, , month forward 7 18, , (see note 3) Total 52,000 44,115 Total 0 0 MONETARY LIABILITIES: MONETARY LIABILITIES: Bank loan Bank Loan Broker payable (5,000) 0 0 Broker payable Repurchase liability (25,000) 30 (2,055) Repurchase liability (10,000) 30 (822) Subordinated loan (30,000) 0 0 Subordinated loan Total (60,000) (2,055) Total (10,000) (822) TOTAL (SHORT) FORWARD/FUTURES: TOTAL (SHORT) FORWARD/FUTURES: 1 month forward 4 (10,000) 30 (822) 1 month forward 2 (10,000) 30 (822) 3 month futures 3 (17,000) 91 (4,238) 3 month forward 1 (10,000) 91 (2,493) 23 month forward 6 (20,000) 700 (38,356) (see note 3) Total 47,000 (43,416) Total (20,000) (3,315) OVER TWO YEARS OVER TWO YEARS 30 month long 5 9, , month short 7 (10,000) 760 (20,822) forward forward month short 5 (5,000) 912 (11,700) 5 forward Total 9,500 23,737 Total (15,000) (32,522) SUMMARY OF NOTES: 1. See Exhibit 1 for forward/future currency contract transaction references. 2. Forward/future currency contract positions must also be marked to market in member firm s inventory. 3. Items 6 and 7 may be offset according to Regulation offset provisos for offsetting positions straddling 2 years which have a difference in their respective terms to maturity of 180 days or less months is equal to 912 days. 912/365 x 1% < maximum term risk of 4%. No adjustment to weighted value required. 5. (912/365 or 2.5) x 3% > 7% maximum term risk. Adjust weighted value to equal to 7% / 3% or 2.34 x 5,000 = 11,700.

4 PART II JOINT REGULATORY FINANCIAL QUESTIONNAIRE AND REPORT ABC CO. (Firm Name) SCHEDULE 11 UNHEDGED FOREIGN CURRENCIES CALCULATION FOREIGN CURRENCY MARGIN GROUP US Dollar 1 BALANCE SHEET ITEMS AND FORWARD/FUTURE AMOUNT WEIGHTED MARGIN COMMITMENTS <=TWO YEARS TO MATURITY VALUE REQUIRED (including offset provisos) 1. Total monetary assets 70, Total long forward/futures contract positions 52,000 44, Total monetary liabilities (60,000) (2,055) 4. Total (short) forward/futures contract positions (47,000) (43,416) 5. Net long (short) foreign exchange positions 15,000 (sum lines 1 to 4) 6. Net weighted value (sum lines 1 to 4) (1,356) 7. Net weighted value multiplied by term risk for 14 Group 1 of 1.00% BALANCE SHEET ITEMS AND FORWARD/FUTURE COMMITMENTS>TWO YEARS TO MATURITY 8. Total monetary assets Total long forward/futures contract positions 9,500 23, Total monetary liabilities Total (short) forward/futures contract positions Net long (short) foreign exchange positions 9,500 (Sum line 8 to 11) 13. Greater of long (sum lines 8 and 9) or short 23,737 (sum lines 10 and 11) weighted values 14. Weighted value multiplied by term risk for 237 Group 1 of 1.00% FOREIGN EXCHANGE MARGIN REQUIREMENT: 15. Net long (short) foreign exchange positions 24,500 (Sum lines 5 and 12) 16. Net foreign exchange position multiplied by 245 spot risk of Group 1 of 1.00% 17. Total spot risk and term risk margin 496 requirement (sum lines 7, 14 and 16) 18. Spot rate at reporting date Margin amount converted to Canadian dollars 575 FOREIGN EXCHANGE CONCENTRATION CHARGE: 20. Not applicable to Group 1 0 TOTAL FOREIGN EXCHANGE MARGIN ALL GROUPS 3,675

5 PART II SCHEDULE 11 JOINT REGULATORY FINANCIAL QUESTIONNAIRE AND REPORT ABC CO. (Firm Name) UNHEDGED FOREIGN CURRENCIES CALCULATION FOREIGN CURRENCY MARGIN GROUP UK Pound 2 BALANCE SHEET ITEMS AND FORWARD/FUTURE AMOUNT WEIGHTED MARGIN COMMITMENTS <= TWO YEARS TO MATURITY VALUE REQUIRED (including offset provisos) 1. Total monetary assets 30, Total long forward/futures contract positions Total monetary liabilities (10,000) (822) 4. Total (short) forward/futures contract positions (20,000) (3,315) 5. Net long (short) foreign exchange positions 0 (sum lines 1 to 4) 6. Net weighted value (sum lines 1 to 4) (4,137) 7. Net weighted value multiplied by term risk for 124 Group 2 of 3.00% BALANCE SHEET ITEMS AND FORWARD/FUTURE COMMITMENTS>TWO YEARS TO MATURITY 8. Total monetary assets Total long forward/futures contract positions Total monetary liabilities Total (short) forward/futures contract positions (15,000) (32,522) 12 Net long (short) foreign exchange positions (15,000) (sum line 8 to 11) 13 Greater of long (sum lines 8 and 9) or short (32,522) (sum lines 10 and 11) weighted values 14. Weighted value multiplied by term risk for Group of 3.00%. FOREIGN EXCHANGE MARGIN REQUIREMENT: 15. Net long (short) foreign exchange positions (15,000) (sum lines 5 and 12) 16. Net foreign exchange position multiplied by spot 450 risk for Group 1 of 3.00% 17. Total spot risk and term risk margin requirement (sum lines 7, 14 and 16) 18. Spot rate at reporting date Margin amount converted to Canadian dollars 3,100 FOREIGN EXCHANGE CONCENTRATION CHARGE: 20. Total foreign exchange margin (line 17) in excess of 25% of (net allowable assets less minimum capital) 0 TOTAL FOREIGN EXCHANGE MARGIN ALL GROUPS 3,675

6 EXHIBIT 2 ALTERNATIVE FORWARDS/FUTURES MARGIN CALCULATION 2 ASSUMPTIONS: Sold or short UK 10,000 versus USD 3 month futures 1.52 with bought or long UK 10,000 versus USD 3 month Bought or long UK 10,000 versus USD 3 month futures 1.52 paired with sold UK 10,000 versus USD 6 month USD/CDN spot rate : 1.16 UK/CDN spot rate : 2.00 GROUP 1 GROUP 2 US - Dollar Unhedged Term Term UK - Pounds Sterling Unhedged Term Term Foreign (days) Weighted Foreign (days) Weighted Exchange (Days/365) Exchange (days/365) Positions Positions 3 month future 15, ,740 3 month future (10,000) 1 91 (2,493) 3 month forward (15,000) 91 (3,740) 3 month forward 10, ,493 3 month future (15,200) 1 91 (3,790) 3 month future 10, ,493 6 month forward (16,000) 182 (7,978) 6 month forward 10, ,986 Sub-total (1,000) (4,238) Sub-total 0 2,493 Margin: Spot risk margin at 1% 10 Spot risk margin at 3% 0 Term risk margin at 1% 42 Term risk margin at 3% 75 Total spot and term Total spot and term risk margin requirement ( ) = 52 USD risk margin requirement (0 + 75) = 75 UK Converted to CDN (52 x 1.16) = 60 CDN Converted to CDN (75 x 2.00) = 150 CDN Provide margin based on the greater of: $150 CDN Notes: 1 - Positions effectively offset for margin purposes as positions are the same and have the same term weighted value 2 - This alternative margin calculation only applies to inventory forward contract/futures positions in which there is a listed futures on a recognized exchange. Any contract positions in which the margin is calculated under the alternative method must be reported as part of the inventory margin calculation for such positions and must be excluded from Schedule 11 unhedged foreign currency margin calculations.

7 CUSTOMER MARGIN EXAMPLE ILLUSTRATION OF CALCULATING MARGIN REQUIREMENT FOR FORWARD CONTRACT DENOMINATED IN A GROUP ONE OR TWO GROUP CURRENCY EXHIBIT 3 ASSUMPTIONS: Client XYZ - Other Counterparty (i.e. Non AI, AC or Regulated Entity) Day 1 Client XYZ purchases USD 1,000,000 vs. CDN 6 month forward contract at 1.15 from the Member. Day 2 USD/CDN 6 month forward rate is 1.10 Day 3 USD/CDN 6 month forward rate is 1.20 Day 1-3 USD/CDN spot rate is 1.16 CLIENT ACCOUNT MARGIN CALCULATION: MARGIN Required/(Excess) Day 1 [Spot risk margin requirement + Term risk margin requirement] x spot rate [(USD 1,000,000 X 1%) + ((USD 1,000,000 x 182/365) x 1%)] x 1.16 Total margin requirement on Day 1 $17,384 CDN Day 2 Forward Contract Mark to Market: Mark to Market loss/(gain) USD 1,000,000 x (Transaction rate - Market value) = 1,000,000 x ( ) 50,000 [Spot risk margin requirement + Term risk management] x spot rate [(USD 1,000,000 X 1%) + USD 1,000,000 x 181/365) x 1%)] x ,352 Total margin requirement on Day 2 $67,352 CDN Day 3 Forward Contract Mark to Market: Mark to Market loss/(gain) [USD 1,000,000 x (Transaction rate - Market value)] [1,000,000 x ( )] (50,000) [Spot risk margin requirement + Term risk margin requirement] x spot rate [(USD 1,000,00 X 1%) + ((USD 1,000,000 x 180/365) x 1%)] x ,321 Total excess margin on Day 3 ($32,679) CDN Notes: 1 - US dollar (USD) is a Group 1 currency. For forward contracts margin required is mark to market adjustment plus FX margin requirement 2 - Member firm must also mark to market forward contract positions held in inventory. 3 - Member firm to provide unhedged foreign exchange margin on forward currency contracts held in inventory as part of Schedule 11 - unhedged foreign currency calculation.

8 ASSUMPTIONS: CUSTOMER MARGIN EXAMPLE ILLUSTRATION OF CALCULATING CLIENT ACCOUNT MARGIN REQUIREMENT INVOLVING MORE THAN ONE CURRENCY Client EFG - Other Counterparty (i.e. Non Acceptable Institution, Acceptable Counterparty or Regulated Entity) Account balance : USD $100,000 debit Spot rates: USD/CDN = 1.16 PE/CDN =.5578 Security 1 Sold USD 100,000 vs. CDN 6 month forward contract USD/CDN 6 month forward rate is 1.20 as at 3/31/199x. Security 2 Long 100,000 US T-Bill maturing in 6 months. Market value is 98 as at 3/31/199x. Security 3 Long 25,000 Peru New Sol (PE) T-Bill maturing in 1 year. Market value is par. EXHIBIT 4 CLIENT ACCOUNT MARGIN CALCULATION: Account debit balance $100,000 USD Security 1 = [Spot risk margin requirement + Term risk requirement] = [USD 100,000 X 1%) + (USD 100,000 x (182-2 days)/365) x 1%)] 1,493 USD Forward Contract Mark to Market: = Forward contract mark to market loss/(gain) = Short USD 100,000 x (Transaction rate - Market value) = (100,000) x ( ) = 5,000 USD Security 2 Security (Loan Value) or Margin Requirement: = Market value of long security x loan value = [(USD 100,000 x.98) x (100% - (1% x 182/365))] = (97,511) USD Sub-total Converted to CDN $8,982 USD $10,419 CDN Security 3 Security (Loan Value) or Margin Requirement: = Market value of long security x loan value x spot rate = [PESO 25,000 x (100% - 10%)] x.5578 = (12,551)CDN = Spot risk margin rate requirement = [PESO 25,000 x 25%] x.5578 = 3,486 CDN ($9,064 CDN Required to margin $1,354 CDN Notes: 1 - US dollar (USD) is a Group 1 currency. For forward contracts margin required is mark to market adjustment plus FX margin requirement 2 - The Peru New Sol (PE) is a Group 4 currency. The combined security margin of 10% plus FX margin of 25% is 35% and does not exceed 100% of market value of the security. 3 - Member firm must also mark to market forward contract positions held in inventory. 4 - Member firm to provide unhedged foreign exchange margin on forward currency contracts held in inventory as part of Schedule 11 - UNHEDGED FOREIGN CURRENCIES CALCULATION.

MEMBER REGULATION. notice

MEMBER REGULATION. notice MEMBER REGULATION INVESTMENT DEALERS ASSOCIATION OF CANADA notice ASSOCIATION CANADIENNE DES COURTIERS EN VALEURS MOBILIÈRES Contact: A. Mian: (416) 943-4656 amian@ida.ca MR181 Re-Issuance of CIB C-11