CA-10.2 CA-10.2 Calculation of Equity Positions
CA-10.2.1
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conventional bank licensee may net long and short positions in the same equity instrument, arising either directly or throughderivatives , to generate the individual net position in that instrument. For example, a future in a given equity may be offset against an opposite cash position in the same equity, albeit the interest rate risk arising out of the future must be calculated separately in accordance with the rules set out in Chapter CA-9.January 2015CA-10.2.2
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conventional bank licensee may net long and short positions in onetranche of an equity instrument against anothertranche only where the relevanttranches :(a) Rank pari passu in all respects; and(b) Become fungible within 180 days, and thereafter the equity instruments of onetranche can be delivered in settlement of the othertranche .January 2015CA-10.2.3
Positions in depository receipts may only be netted against positions in the underlying stock if the stock is freely deliverable against the depository receipt. If a
conventional bank licensee takes a position in depository receipts against an opposite position in the underlying equity in different markets (i.e. arbitrage), it may offset the position provided that any costs on conversion are fully taken into account. Furthermore, the foreign exchange risk arising out of these positions must be included in the measurement framework as set out in Chapter CA-11.January 2015CA-10.2.4
More detailed guidance on the treatment of equity
derivatives is set out in Section CA-10.5.January 2015CA-10.2.5
Equity positions, arising either directly or through
derivatives , must be allocated to the country in which each equity is listed. Where an equity is listed in more than one country, theconventional bank licensee must discuss the appropriate country allocation with the CBB.January 2015
