Home FCA Handbook MIFIDPRU MIFIDPRU 4 MIFIDPRU 4.11 Trading book and dealing on own account: general provisions

This chapter includes rules that refer to provisions of the UK CRR in the form in which it stood at 31 December 2021. That version of the UK CRR can be found on legislation.gov.uk using this link .

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MIFIDPRU 4.11 Trading book and dealing on own account: general provisions

01/12/2021G

References to trading book positions in MIFIDPRU include all trading book positions of the firm, including positions in:

  1. (1)

    equity instruments;

  2. (2)

    debt instruments (including securitisation instruments);

  3. (3)

    collective investment undertakings;

  4. (4)

    foreign exchange;

  5. (5)

    gold; and

  6. (6)

    commodities and emissions allowances.

01/12/2021G
  1. (1)

    For the purposes of the definition of a position held with trading intent in relation to the trading book, positions arising from client servicing include those arising out of contracts in relation to which a firm is acting as principal (even in the context of activity described as ‘broking’ or ‘customer business’). This applies even if the nature of the business means that the only risks incurred by the firm are counterparty risks (i.e. no market risk charges apply).

  2. (2)

    If the nature of the business means that the only risks incurred by the firm are counterparty risks, the position will generally still be a position held with trading intent.

  3. (3)

    The FCA understands that business carried out under International Uniform Brokerage Execution (“Give-Up”) Agreements involve back to back trades as principal. If so, positions arising out of business carried out under such agreements should be allocated to a firm’s trading book.

01/12/2021R
  1. (1)

    A MIFIDPRU investment firm must manage its trading book in accordance with Chapter 3 of Title I of Part Three of the UK CRR in the form in which it stood at 31 December 2021, with the following modifications:

    1. (a)

      if a firm is unsure whether a position is a position held with trading intent or is held to hedge a position held with trading intent, the firm must include that position within its trading book;

    2. (b)

      the following provisions of the UK CRR do not apply:

      1. (i)

        article 102(1);

      2. (ii)

        article 102(4);

      3. (iii)

        article 104(2)(g); and

      4. (iv)

        article 106;

    3. (c)

      the reference in article 104(1) of the UK CRR to “policies and procedures for determining which position to include in the trading book” is a reference to “policies and procedures for identifying which positions form part of the trading book”.

  2. (2)

    Any reference to the UK CRR in this rule is to the UK CRR as applied and modified by (1).

01/12/2021R

The following requirements only apply to a firm that deals on own account, whether on its own behalf or on behalf of its clients:

  1. (1)

    the K-NPR requirement;

  2. (2)

    the K-CMG requirement; and

  3. (3)

    the K-TCD requirement.

01/12/2021R

The K-DTF requirement applies to a firm that:

  1. (1)

    deals on own account; or

  2. (2)

    executes orders on behalf of clients in the firm’s own name.

01/12/2021G

A MIFIDPRU investment firm that deals on own account is also subject to the K-CON requirement in accordance with MIFIDPRU 5.

01/12/2021G

A MIFIDPRU investment firm that has permission to operate an organised trading facility may rely on that permission to:

  1. (1)

    carry out matched principal trading in certain types of financial instruments with client consent, in accordance with MAR 5A.3.5R(1); and

  2. (2)

    deal on own account in illiquid sovereign debt instruments in accordance with MAR 5A.3.5R(2).

In either case, the firm will be dealing on own account and is therefore subject to the requirements in MIFIDPRU 4.11.4R and MIFIDPRU 4.11.5R to the extent relevant to the transactions it undertakes. MIFIDPRU 5 explains how the K-CON requirement applies to such firms.

01/12/2021R

A firm to which MIFIDPRU 4.11.4R applies is required to calculate its K-NPR requirement and K-CMG requirement only in relation to:

  1. (1)

    trading book positions; and

  2. (2)

    positions other than trading book positions where the positions give rise to foreign exchange risk or commodity risk.

01/12/2021R
  1. (1)

    This rule applies where a firm has deliberately taken a position to hedge against the adverse impact of a foreign exchange rate on:

    1. (a)

      the firm’s own funds requirement; or

    2. (b)

      an item which the firm has deducted from its own funds.

  2. (2)

    A firm may exclude a position in (1) from its net open currency positions for the purpose of article 352 of the UK CRR (as applied by MIFIDPRU 4.12.2R) if the firm has prior permission from the FCA.

  3. (3)

    To obtain the permission in (2), a firm must:

    1. (a)

      complete the application form in MIFIDPRU 4 Annex 1R and submit it to the FCA using the online notification and application system;

    2. (b)

      in the application, demonstrate to the satisfaction of the FCA that the position is:

      1. (i)

        used for one of the hedging purposes in (1)(a) or (1)(b); and

      2. (ii)

        of a non-trading or structural nature.

  4. (4)

    This rule replaces article 352(2) UK CRR where that article would otherwise apply under MIFIDPRU 4.12.2R.

01/12/2021R

A firm to which MIFIDPRU 4.11.4R applies is required to calculate its K-TCD requirement only in relation to the following:

  1. (1)

    transactions that form part of its trading book; and

  2. (2)

    transactions specified in MIFIDPRU 4.14.3R(7).