SWAP POSITIONS

5682. Offsets involving total performance swaps and underlying securities

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    1. Offset involving two total performance swaps - Where a Dealer Member:

      1. is a party to a total performance swap requiring it to pay (or entitling it to receive) Canadian dollar or United States dollar amounts calculated based on the performance of a stipulated underlying security or basket of securities, with reference to a notional amount,

      2. and

      3. is a party to another total performance swap entitling it to receive (or requiring it to pay) amounts calculated based on the performance of the same underlying security or basket of securities, with reference to the same notional amount and denominated in the same currency,

    2. the two positions in clauses 5682(1)(i) and 5682(1)(ii) may be offset and the minimum margin required for both positions may be computed as the net of the normal margin required for each position, provided that the normal margin required on the performance payment (or receipt) component position may only be offset against the normal margin required on the performance receipt (or payment) component position, and the normal margin required on the floating interest rate payment (or receipt) component position may only be offset against the normal margin required on the floating interest rate receipt (or payment) component position.

    3. Offset involving short total performance swap component position and long underlying security position - Where a Dealer Member:

      1. is a party to a total performance swap requiring it to pay amounts calculated based on the performance of a stipulated underlying security or basket of securities, with reference to a notional amount, 

      2. and

      3. holds long an equivalent quantity of the same underlying security or basket of securities,

      4. the two positions in clauses 5682(2)(i) and 5682(2)(ii) may be offset and the minimum margin required for both positions may be computed as either:

      5. nil, where it can be demonstrated that sell-out risk relating to the offset has been mitigated:

        1. through the inclusion of a realization clause in the total performance swap, which allows the Dealer Member to close out the swap using the sell-out price for the long position in the underlying security or basket of securities, or

        2. since, due to the features inherent in the long position in the underlying security or basket of securities or the market on which the underlying security or basket of securities trades, the realization value of the long position in the underlying security or basket of securities is determinable at the time the total performance swap is to expire and this value will be used as the closeout price for the swap,

      6. or

      7. 20% of the normal margin required on the long position in the underlying security or basket of securities where sell-out risk relating to the offset has not been mitigated.

    4. Offset involving long total performance swap component position and short underlying security position - Where a Dealer Member:

      1. is a party to a total performance swap entitling it to receive amounts calculated based on the performance of a stipulated underlying security or basket of securities, with reference to a notional amount, 

      2. and

      3. holds short an equivalent quantity of the same underlying security or basket of securities,

      4. the two positions in clauses 5682(3)(i) and 5682(3)(ii) may be offset and the minimum margin required for both positions may be computed as either:

      5. nil, where it can be demonstrated that buy-in risk relating to the offset has been mitigated:

        1. through the inclusion of a realization clause in the total performance swap, which allows the Dealer Member to close out the swap using the buy-in price for the short position in the underlying security or basket of securities, or

        2. since, due to the features inherent in the short position in the underlying security or basket of securities or the market on which the underlying security or basket of securities trades, the realization value of the short position in the underlying security or basket of securities is determinable at the time the total performance swap is to expire and this value will be used as the closeout price for the swap,

      6. or

      7. 20% of the normal margin required on the short position in the underlying security or basket of securities where buy-in risk relating to the offset has not been mitigated.

    5683. – 5699. Reserved.

    There is no history log for this rule.

    There is no history log for this rule.