The Financial Services and Markets Act 2000 (Excluded Activities and Prohibitions) Order 2014
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Change 1
11 Derivatives: options and swaptions
(1) The requirements listed in this paragraph are that— (a) the transaction is an option exercisable by a customer (“X”) of the ring-fenced body requiring the ring-fenced body to buy or sell foreign currency or commodities, and (b) the contract in which the option is granted specifies— (i) the currency or commodity concerned; (ii) the amount of currency or commodity which may be bought or sold under the option; (iii) a single date on which the option may be exercised (which must be no later than 3 years from the date on which the contract is entered into); and (iv) the exchange rate or commodity price which will apply to the transaction. (2) The requirements listed in this paragraph are that— (a) the transaction consists of a cap or floor (or both) under which— (i) in respect of a cap, the ring-fenced body must pay X an amount equal to A minus B (provided that amount is a positive number), where “A” is the interest payable in relation to a specified notional amount at the interest rate prevailing during the specified calculation period (“the floating interest rate”), and “B” is the interest payable on that notional amount at the interest rate specified in the agreement (“the fixed interest rate”), or (ii) in respect of a floor, X must pay the ring-fenced body an amount equal to C minus D (provided that amount is a positive number), where “C” is the interest payable in relation to a specified notional amount at the interest rate specified in the agreement (“the fixed interest rate”), and “D” is the interest payable in relation to that notional amount at the interest rate prevailing during the specified calculation period (“the floating interest rate”), and (b) the agreement relating to the cap or floor specifies— (i) the notional amounts and the fixed and floating interest rates referred to in sub-paragraph (a)(i) and (ii); and (ii) the calculation period. (3) The requirements listed in this paragraph are that— (a) the transaction consists of an option for the customer to enter into an interest rate swap; (b) the agreement granting the option specifies— (i) a single date on which the option may be exercised (which must be no later than 5 years from the date on which the agreement is entered into); (ii) the terms which will apply to the interest rate swap, including the interest rates to which the swap applies; and (iii) the notional amount on which the swap payments are to be calculated. (4) The requirements listed in this paragraph are that— (a) the transaction consists of a cap and a floor, related to two specified currencies under which— (i) if, on the specified exercise date, the prevailing rate of exchange (“the spot FX rate”) between the two specified currencies is above the cap rate, the customer and the ring-fenced body will exchange the specified currencies at the cap rate, (ii) if, on the specified exercise date, the spot FX rate between the two specified currencies is below the floor rate, the customer and the ring-fenced body will exchange the specified currencies at the floor rate, and (iii) if, on the specified exercise date, the spot FX rate between the two specified currencies is neither above the cap rate nor below the floor rate, the customer and the ring-fenced body will not exchange the specified currencies; (b) the agreement relating to the cap specifies— (i) the two currencies to which the cap relates; (ii) the applicable cap rate; (iii) the exercise date; (iv) the identity of the party purchasing the cap, which must be the ring-fenced body or a customer of the ring-fenced body; (c) the agreement relating to the floor specifies— (i) the two currencies to which the floor relates; (ii) the applicable floor rate; (iii) the exercise date; (iv) the identity of the party purchasing the floor, which must be the ring-fenced body or a customer of the ring-fenced body. (5) The requirements in paragraph (4)(b) and (c) may be satisfied by a single agreement specifying the provisions required for both the cap and the floor.
11 Derivatives: options and swaptions
(1) The requirements listed in this paragraph are that— (a) the transaction is an option exercisable by a customer (“X”) of the ring-fenced body requiring the ring-fenced body to buy or sell foreign currency or commodities, and (b) the contract in which the option is granted specifies— (i) the currency or commodity concerned; (ii) the amount of currency or commodity which may be bought or sold under the option; (iii) a single date on which the option may be exercised (which must be no later than 3 years from the date on which the contract is entered into); and (iv) the exchange rate or commodity price which will apply to the transaction. (2) The requirements listed in this paragraph are that— (a) the transaction consists of a cap or floor (or both) under which— (i) in respect of a cap, the ring-fenced body must pay X an amount equal to A minus B (provided that amount is a positive number), where “A” is the interest payable in relation to a specified notional amount at the interest rate prevailing during the specified calculation period (“the floating interest rate”), and “B” is the interest payable on that notional amount at the interest rate specified in the agreement (“the fixed interest rate”), or (ii) in respect of a floor, X must pay the ring-fenced body an amount equal to C minus D (provided that amount is a positive number), where “C” is the interest payable in relation to a specified notional amount at the interest rate specified in the agreement (“the fixed interest rate”), and “D” is the interest payable in relation to that notional amount at the interest rate prevailing during the specified calculation period (“the floating interest rate”), and (b) the agreement relating to the cap or floor specifies— (i) the notional amounts and the fixed and floating interest rates referred to in sub-paragraph (a)(i) and (ii); and (ii) the calculation period. (3) The requirements listed in this paragraph are that— (a) the transaction consists of an option for the customer to enter into an interest rate swap; (b) the agreement granting the option specifies— (i) a single date on which the option may be exercised (which must be no later than 5 years from the date on which the agreement is entered into); (ii) the terms which will apply to the interest rate swap, including the interest rates to which the swap applies; and (iii) the notional amount on which the swap payments are to be calculated. (4) The requirements listed in this paragraph are that— (a) the transaction consists of a cap and a floor, related to two specified currencies under which— (i) if, on the specified exercise date, the prevailing rate of exchange (“the spot FX rate”) between the two specified currencies is above the cap rate, the customer and the ring-fenced body will exchange the specified currencies at the cap rate, (ii) if, on the specified exercise date, the spot FX rate between the two specified currencies is below the floor rate, the customer and the ring-fenced body will exchange the specified currencies at the floor rate, and (iii) if, on the specified exercise date, the spot FX rate between the two specified currencies is neither above the cap rate nor below the floor rate, the customer and the ring-fenced body will not exchange the specified currencies; (b) the agreement relating to the cap specifies— (i) the two currencies to which the cap relates; (ii) the applicable cap rate; (iii) the exercise date; (iv) the identity of the party purchasing the cap, which must be the ring-fenced body or a customer of the ring-fenced body; (c) the agreement relating to the floor specifies— (i) the two currencies to which the floor relates; (ii) the applicable floor rate; (iii) the exercise date; (iv) the identity of the party purchasing the floor, which must be the ring-fenced body or a customer of the ring-fenced body. (5) The requirements in paragraph (4)(b) and (c) may be satisfied by a single agreement specifying the provisions required for both the cap and the floor.
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