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  • CA-3 CA-3 Calculation of Risk-Based Capital Requirements

    • CA-3.1 CA-3.1 Expenditure Requirement

      • CA-3.1.1

        The Expenditure Requirement is equal to one quarter of the relevant annual expenditure.

      • CA-3.1.2

        Except in instances noted under Paragraph CA-3.1.2A, relevant annual expenditure equals the total annual expenditure (based on audited financial statements) less those items of expenditure that could be reduced or eliminated within a short period of time if required. Subject to prior CBB written approval, exceptional items of expenditure may also be excluded.

        Amended: April 2011
        Amended: January 2007

      • CA-3.1.2A

        For newly established investment firm licensees, for the first year of operations, the total annual expenditure is based on the projected annual expenditure figure for the first year as stated in the business plan submitted during the authorisation stage in accordance with Paragraph AU-5.1.6.

        Added: April 2011

      • CA-3.1.3

        Items that could be reduced or eliminated within a short period for the purposes of Rule CA-3.1.2 are:

        (a) Bonuses paid out of the relevant year's profits which have not been guaranteed;
        (b) Profit shares and other appropriations of profit, except for fixed or guaranteed remuneration which is payable even if the investment firm licensee makes a loss for the year;
        (c) Paid commissions shared, other than to employees or Directors of the investment firm licensee;
        (d) Fees, brokerage and other charges paid to clearing houses, clearing firms, exchanges, and intermediate brokers for the purposes of executing, registering or clearing transactions;
        (e) Interest payable to counterparties; and
        (f) Interest payable on borrowings to finance the investment firm licensee's investment firm and associated firm.
        Amended: October 2013
        Amended: January 2007

    • CA-3.2 CA-3.2 Position Risk Requirement (PRR)

      • CA-3.2.1

        An investment firm licensee's Position Risk Requirement is the sum of its individual Position Risk Requirements, calculated as a percentage of the market or realisable value of each financial instrument held, as specified in Schedule 1 below:

        Schedule 1 — Position Risk Requirement
        (a) Claims on Sovereigns, Public Sectors Entities, International Organisations, and Multilateral Development Banks
        Includes:
        1. Claims on governments of GCC member states and their central banks;
        2. Claims on other sovereigns and their central banks where such claims are denominated and funded in the relevant domestic currency of that sovereign/central bank;
        3. Claims on Bahraini Public Sectors Entities listed in Appendix CA-1;
        4. Claims on International Organisations and Multilateral Development Banks listed in Appendix CA-1.
        		0%
        (b) Debt <90 days 90 days–1 yr 1–5 yrs >5 yrs
          OECD 2% x MV 2% x MV 5% x MV 10% x MV
        Issued or accepted by banks 2% x MV 2% x MV 5% x MV 10% x MV
        Other marketable financial instruments 10% x MV 10% x MV 20% x MV 30% x MV
        Floating rate notes <20 yrs 5% x MV    
          >20 yrs 10% x MV    
        (c) Equities
          Listed on a regulated financial instrument exchange 25% x MV
        Listed on Bahrain Stock Exchange 25% x MV
        Traded on a regulated financial instrument exchange 35% x MV
        Traded on Bahrain Stock Exchange 35% x MV
        Other 100% x MV
        (d) Commodities
          Stock positions in physical commodities associated with an investment firm licensee's investment firm 30% of realisable value
        (e) Futures, options and contracts for differences
          Exchange traded futures and written options 4 x initial margin requirement
        Off exchange futures and written options The appropriate percentage shown in a, b and c above should be applied to the value of the underlying position.
        Purchased options As for off exchange written options but limited to the current value of the option.
        Contracts for differences 20% of the market value of the contract.
        (f) Other investments
          Single premium unit linked bonds and units in a regulated collective investment scheme unless covered below 25% of realisable value
        Units in a regulated scheme which is a geared futures and options fund, or a property fund, or a warrant fund 50% of realisable value
        With profit life policies 20% of surrender value
        Any other investments 100% of amount of asset
        Amended: October 2019

      • CA-3.2.2

        With reference to Paragraph CA-3.2.1(a), claims on sovereigns means receivables from a sovereign government or its central bank, generally in the form of sovereign debt (such as bonds, sukuk etc.). Position Risk Requirement (PRR) of 0% applies to claims on the governments of GCC member states and their central banks. Claims on the governments of other sovereign states and their central banks also attract a PRR of 0% provided such claims are denominated and funded in the relevant domestic currency of that sovereign/central bank. PRR of 0% for claims on GCC/other sovereigns and their central banks will apply only if the relevant supervisor of that jurisdiction also provides a similar relief on claims on its government and central bank.

        Added: October 2019

      • CA-3.2.3

        With reference to Any claims on Bahraini Public Sectors Entities listed in Appendix CA-1 are treated as claims on the government of Bahrain and are eligible for a PRR of 0%. Similarly, claims on International Organisations and Multilateral Development Banks listed in Appendix CA-1 are also eligible for a PRR of 0%.

        Added: October 2019

    • CA-3.3 CA-3.3 Counterparty Risk Requirement (CRR)

      • CA-3.3.1

        An investment firm licensee's Counterparty Risk Requirement is the sum of its individual Counterparty Risk Requirements, calculated in accordance with Schedule 2 below:

        Schedule 2 — Counterparty Risk Requirement
        (a) Cash against document transactions
          Where an investment firm licensee has unsettled deals in any securities it must calculate the price difference to which it is exposed and then multiply this by the appropriate percentage below to calculate the CRR for each separate unsettled deal.
        Calendar days after settlement Percentage
        0–15 Nil
        16–30 25%
        31–45 50%
        46–60 75%
        Over 60 100%
        (b) Free deliveries
          Where an investment firm licensee makes payment or delivers securities to a counterparty without receiving the certificate/good title or payment respectively, it must calculate a CRR for each free delivery by applying the appropriate percentage below:
        Where free delivery has been made to: Business days since delivery
          0–3 4–15 >15
        A manager, underwriter or member of a selling syndicate to whom payment for securities has been made 0% 0% 100%
        An investment firm licensee to whom securities have been delivered or payment has been made with the expectation that market practice will result in a settlement date longer than three days from delivery date. 15% 15% 100%
        Any other counterparty 0% 100% 100%
        (c) Options purchased for a counterparty
          Where an investment firm licensee has purchased an option on behalf of a counterparty on terms which do not impose on the purchaser any actual or contingent margin requirement or liability to make any payment other than the initial purchase price of the option, and the counterparty has not paid the price by three days after trade date, the CRR is the amount by which the purchase price exceeds the current realisable value of the option.

        Where an investment firm licensee has purchased a traditional option for its own account or on behalf of a counterparty that has not paid the investment firm licensee, then, if the investment firm licensee has paid the option premium to the writer, it must calculate a CRR equal to the option premium.
        (d) Amounts owed in respect of exchange traded margined transactions
          (i) Where, as a result of a traded margined transaction, a counterparty of the investment firm licensee has an initial margin and/or variation margin requirement and has not met it fully with cash, acceptable collateral or a positive equity balance not used to meet variation margin, an investment firm licensee must calculate a CRR by multiplying the shortfall (or the relevant part of the shortfall) by the appropriate percentage contained in the schedule below:
        Initial and variation margin percentage schedule
        Business days since shortfall occurred

        Where the shortfall is for the account of:        		 0–3 days 4 days and over
        A. A market counterparty who has been granted a credit line under an adequate credit management policy available to cover the relevant category of margin and to the extent that it is sufficient to cover the shortfall. 5% 5%
        B. A client who has been granted a credit line under an adequate credit management policy available to cover the relevant category of margin and to the extent that it is sufficient to cover the shortfall. 10% 10%
        C. A market counterparty or client not within A or B above, or to the extent that he is not within A or B (the shortfall then being limited to the excess). 0% 100%
        (ii) Local or traded option market makers. An investment firm licensee must calculate a 100% CRR for amounts of initial and variation margin not met with acceptable collateral or a positive equity balance and owed to it by a local (or by a traded option market maker) in respect of a traded margined transaction from the date of any shortfall, unless the investment firm licensee treats the local's (or market maker's) position as if it were its own (in which case the PRR rules under Section CA-3.2 will apply instead).
        (iii) Sums owed on closed out exchange traded margined transactions. When, as a result of a traded margined transaction which has been closed out, a counterparty of the investment firm licensee owes any amounts to it arising out of losses on those transactions, and has not fully met that amount through the deposit of cash, acceptable collateral or a positive equity balance not otherwise used, the investment firm licensee must after three days from the date of crystallisation of the loss calculate a CRR equal to the unpaid amount.
        (iv) Margin percentages. An investment firm licensee may, with the prior approval of the CBB, opt to calculate the CRR using a higher or the highest initial margin or variation margin percentage, in order to avoid undue complication.
        (e) Concentrated risk to one counterparty
          If the total amount due to a licensee for free deliveries or other debts attracting a CRR from a single counterparty (or a group of closely related counterparties) exceeds 25% of the licensee's capital available, it must calculate CRR by applying the appropriate percentage below:
        Amount of capital available Additional CRR
        0–25% Nil
        25.01–50% 15% (or the entire excess if less)
        Over 50% 40% (or the entire excess if less)
        (f) Repurchase and reverse repo transactions, including sale and buy back and securities lending
          An investment firm licensee shall notify the CBB if it has counterparty exposures in these investments.
        (g) Swaps, forward contracts, over the counter options, contracts for differences and off-exchange futures
          An investment firm licensee shall notify the CBB if it has counterparty exposures in these investments.
        (h) Loans to counterparties (including free delivery payments)
          An investment firm licensee must calculate a 100% CRR on the amount by which a loan to a counterparty is not properly secured, or offset against an amount owed by the investment firm licensee to the counterparty (provided there is an agreement in writing that the investment firm licensee deems to be legally enforceable and effective to secure such set-off).
        (i) Other receivables and accrued income
          Other receivables and accrued income not covered elsewhere attract 100% CRR from the time that they become due.
        Amended: January 2007

    • CA-3.4 CA-3.4 Foreign Exchange Risk Requirement (FER)

      • CA-3.4.1

        The foreign exchange requirement is 10% of the net open foreign currency position.

        Amended: October 2009

      • CA-3.4.2

        For each foreign currency (that is, any other currency other than that in which the investment firm licensee's financial statements are presented) in which the investment firm licensee has monetary assets or liabilities or any off balance sheet contracts which would give rise to a position in that currency, the investment firm licensee should calculate the net open position (netting assets and liabilities). This should be converted into the presentation currency. Where the price of an investment is quoted in more than one currency, a position in the investment shall be treated as an asset or a liability in the currency of the country in which the main or principal market in the investment is based. (Options included in the position risk requirement are to be excluded from these calculations).

        Amended: October 2009

      • CA-3.4.3

        Monetary assets or liabilities or any off balance sheet contracts which would give rise to a position in currencies of Gulf Cooperation Council countries or United States dollar are exempted for the purposes of calculating regulatory capital requirement.

        Amended: October 2009
        Amended: January 2007

      • CA-3.4.4

        An investment firm licensee's foreign exchange risk calculation must include the following items regardless of whether they are trading or non-trading positions

        (a) All spot positions in foreign currency (that is, all asset items less all liability items, including accrued interest, in the foreign currency in question); and
        (b) All forwards positions in foreign currency (net present value in respect of notional position).
        Amended: October 2009

      • CA-3.4.5

        An investment firm licensee's foreign exchange risk calculation shall not include the following:

        (a) Foreign currency assets which have been deducted in full from the firm's capital resources under the calculation under the capital resources table;
        (b) Position hedging where it is of a non trading or structural nature;
        (c) Positions of a non trading or structural nature that a firm has deliberately taken in order to hedge against the adverse effect of the exchange rate on the ratio of its capital resources to its capital resources requirements; and
        (d) Transactions to the extent that they fully hedge net future foreign currency income or expenses which are known but not yet accrued.
        Amended: October 2009

      • CA-3.4.6

        Where an Investment firm licensee does not include position hedging in its foreign exchange risk calculation, it shall:

        (a) Notify the CBB before such exclusion and the terms on which the relevant item will be excluded;
        (b) Document its policy in the use of that exclusion in its trading book policy statement.
        Adopted: October 2009

      • CA-3.4.7

        The net overall position is the sum of all the spot and forward positions. (Note that all the positions should be converted into the presentation currency)

        Adopted: October 2009

      • CA-3.4.8

        Spot net position is calculated as the difference between the gross spot assets and gross spot liabilities. Forward net position is calculated as the difference between the gross forward purchases and gross forward sales

        Adopted: October 2009