Order of the Banking, Financial and Insurance Commission of 5 December 1995 concerning the regulation on the own funds of stockbroking companies, approved by the ministerial order of 31 December 1995

ORDER OF THE BANKING, FINANCIAL AND INSURANCE COMMISSION CONCERNING THE REGULATION ON THE OWN FUNDS OF STOCKBROKING COMPANIES

Unofficial coordination of 01.11.04

1 It should be noted that as of 1 January 2004, the words “Banking and Financial Commission” were replaced by the words “Banking, Financial and Insurance Commission” and the letters “CBF” were replaced by the letters “CBFA” in all legislative texts (modification implicitly effected by Article 1 of the Royal Decree of 25 March 2003 (Belgian Monitor, 31 March 2003)).

Chapter I Scope, definitions and general provisions
Section I Scope
Art. 1
The provisions of this regulation apply to:
1° investment firms of Belgian law that have obtained approval from the Banking, Financial and Insurance Commission as stockbroking companies referred to in Book II, Title II of the Law of 6 April 1995 on secondary markets, the status of investment firms and their supervision, intermediaries and investment advisors; 2° branches in Belgium of investment firms subject to the law of States that are not members of the European Community, referred to in Book II, Title IV of the Law of 6 April 1995 on secondary markets, the status of investment firms and their supervision, intermediaries and investment advisors, and which have obtained approval from the Banking, Financial and Insurance Commission as stockbroking companies.

Section II Various definitions
Art. 2
For the purposes of this regulation, the following terms are understood as:
1° "multilateral development bank", one of the following institutions: the International Bank for Reconstruction and Development (the World Bank), the International Finance Corporation, the Inter-American Development Bank, the Asian Development Bank, the African Development Bank, the Council of Europe Resettlement Fund, the Nordic Investment Bank, the Caribbean Development Bank, the European Investment Fund[, the European Bank for Reconstruction and Development [, the Multilateral Investment Guarantee Agency] [and the Inter-American Investment Corporation]; 2° "third-party funds", the due liabilities increased by commitments regarding immobilized assets; third-party funds do not however include provisions for risks and charges, subordinated debts, reconstruction funds, nor, where applicable, mathematical reserves related to life insurance or capitalization contracts annexed to mortgage loans;

3° "delta", the variation in the value of an option following a small variation in the value of the underlying instrument to which the option refers; 4° "gamma", the sensitivity of the value of an option relative to the rate of variation of the delta; 5° "vega", the sensitivity of the value of an option relative to a variation in volatility; 6° "derivative instruments", the following elements, which do not involve a firm commitment to acquire, or sell, an asset at a future date:
1° interest rate futures;
2° foreign exchange futures;
3° gold futures;
4° equity futures;
5° futures on other precious metals;
6° other futures;
7° "over-the-counter derivative instruments", derivative instruments that have not been traded on an organized market [...]; 8° "financial instrument", one of the instruments referred to in Article 1, §§ 1 and 2, of the Law of 6 April 1995 on secondary markets, the status of investment firms and their supervision, intermediaries and investment advisors; 9° "risk weights", the degrees of risk applicable to the counterparties considered, in accordance with Chapter III; however, risks in the form of brokerage fees, commissions, interest, dividends and margin deposits, as well as other risks resulting from the execution of transactions, assumed vis-à-vis clearing houses and stock exchanges specified by the Banking, Financial and Insurance Commission, are assigned the same weight as that assigned when the counterparty is a credit institution in geographical zone A; 10° "general risk", the risk of a variation in the market value of a financial instrument, caused by a fluctuation in the level of interest rates (in the case of a bond or other debt security or a derivative instrument on a bond or other debt security), or by a general movement in the stock market or other values assimilable to stocks not attributable to specific characteristics of the values concerned (in the case of a stock or other value assimilable to a stock or a derivative instrument on a stock or other value assimilable to a stock); 11° "specific risk", the risk of a variation in the market value of a financial instrument under the influence of factors related to its issuer or, in the case of a derivative instrument, to the issuer of the underlying instrument; 12° [“warrant”, a security that gives its holder the right to buy an underlying asset at a determined price, either on the expiration date of the warrant, or during the entire life of the warrant; it can be settled by delivery of the underlying asset itself or by cash settlement;] 13° "geographical zone A" and "geographical zone B", the following zones:
geographical zone A includes the Member States of the European Community, as well as all other countries that are full members of the Organisation for Economic Co-operation and Development and countries that have concluded special lending agreements with the International Monetary Fund (IMF) under the IMF's General Agreements to Borrow; however, any country that reschedules its external public debt is excluded from geographical zone A for a period of five years; geographical zone B includes all countries that do not belong to geographical zone A. [14° “recognized market”, a Belgian or foreign market

• which meets the conditions set out in Article 1, § 3, 2° and 3°, of the Law of 6 April 1995 on secondary markets, investment firms, intermediaries and investment advisors, and
• which has a clearing mechanism providing that derivative instruments traded on this market are subject to daily margin requirements offering protection deemed appropriate by the Commission;
  the Commission establishes, for the purposes of this regulation, the list of markets referred to;] [15° “stock financing”, positions where the physical stock has been sold forward and the cost of financing is frozen until the date of the forward sale;] [16° “repo” and “reverse repo”, an operation by which an establishment or its counterparty transfers securities, commodities or guaranteed rights relating to the ownership of securities or commodities, when this guarantee is issued by a recognized market that holds the rights to the securities or commodities and the operation does not allow an establishment to transfer or pledge a security or commodity to more than one counterparty at a time, committing to repurchase them (or to repurchase securities or commodities with the same characteristics) at a determined price and a future date fixed or to be fixed by the establishment carrying out the transfer.

It is a “repo” operation for the establishment selling the securities or commodities, and a “reverse repo” operation for the establishment buying them;] [17° “securities or commodities lending” and “securities or commodities borrowing”, a transaction by which an establishment or its counterparty transfers securities or commodities against the delivery of appropriate collateral, the borrower committing to return equivalent securities or commodities at a future date or when the establishment transferring the securities or commodities requests it. It is a “securities or commodities lending” for the establishment transferring the securities or commodities, and a “securities or commodities borrowing” for the establishment to which they are transferred;] [18° “Commission”, the Banking, Financial and Insurance Commission.] [Thus amended by Article 1 of the Order of the Banking, Financial and Insurance Commission of 27 August 1996 (Approved by the ministerial order of 8 November 1996 - Belgian Monitor of 19 November 1996), by Article 2 of the Order of the Banking, Financial and Insurance Commission of 4 July 2000 (Approved by the ministerial order of 3 August 2000 - Belgian Monitor of 15 August 2000) and by Article 1 of the Order of the Banking, Financial and Insurance Commission of 13 July 2004 (Approved by the ministerial order of 27 September 2004 – Belgian Monitor of 19 October 2004)]

Section III Definition of the trading book
Sub-section 1 - Concept of "trading book"
Art. 3
The trading book includes:
1° a) proprietary positions in financial instruments, [commodities and commodity derivative instruments], which are held by the establishment for resale and/or which are taken by this establishment with the intention of profiting in the short term from actual and/or expected differences between their purchase and sale prices, or other price or interest rate variations; b) positions in financial instruments, [commodities and commodity derivative instruments], resulting from simultaneous purchases and sales carried out for proprietary account ("matched principal broking"); c) positions held to hedge other elements of the trading book; 2° risks related to:
a) unsettled operations, referred to in Article 19; b) incomplete transactions, referred to in Article 22; c) over-the-counter derivative instruments, referred to in Article 24; d) repo operations and [securities or commodities lending], involving [securities or commodities] included in the trading book within the meaning of 1° above, referred to in Article 23; e) reverse repo operations and [securities or commodities borrowing] concluded within the framework of the trading book and which satisfy the conditions provided for in Article 4, referred to in Article 23; 3° risks in the form of brokerage fees, commissions, interest, dividends and margin deposits concerning derivative instruments traded on an exchange that are directly linked to the elements included in the trading book and referred to in Article 25. [Thus amended by Article 2 of the Order of the Banking, Financial and Insurance Commission of 4 July 2000 (Approved by the ministerial order of 3 August 2000 - Belgian Monitor of 15 August 2000)]

Art. 4
The operations and transactions referred to in Article 3, 2°, e), must satisfy:

• either the conditions listed in points 1°, 2°, 3° and 5° of the second paragraph;
• or the conditions listed in points 4° and 5° in the second paragraph.
  The conditions referred to in the first paragraph are as follows:
  1° risks are assessed daily at market price;
  2° the collateral is adapted to take into account significant variations in the value [of the securities or commodities] on which the operation or transaction in question is based, according to a rule deemed acceptable by the Banking, Financial and Insurance Commission; 3° the operation or transaction provides that the establishment's claims are automatically and immediately offset with the claims of its counterparty in the event of the latter's default; 4° it is an inter-professional operation or transaction; 5° these operations and transactions are reserved for their accepted and appropriate use, artificial transactions, and more specifically those that are not short-term, being excluded.

[Thus amended by Article 2 of the Order of the Banking, Financial and Insurance Commission of 4 July 2000 (Approved by the ministerial order of 3 August 2000 - Belgian Monitor of 15 August 2000)]

Art. 5
The inclusion of particular elements in the trading book, or their exclusion, is carried out according to objective procedures including, where applicable, the accounting standards to which the establishment is subject.
The procedures and accounting standards determining the composition of the trading book must be applied consistently.

Art. 6
Notwithstanding the provisions of Article 5, the Banking, Financial and Insurance Commission may, if it deems it appropriate from a prudential viewpoint, impose the inclusion of elements or categories of elements in the trading book, or oppose their inclusion in the trading book.

Sub-section 2 - De minimis
Art. 7
Establishments that meet the following conditions may calculate the capital requirements relating to their trading book in accordance with Chapter III, rather than according to the provisions of Chapters IV to VII. This provision applies mutatis mutandis to the standards resulting from Chapter X. The conditions referred to in the first paragraph are as follows:
1° the trading book does not normally exceed 5% of their total operations; 2° the total of the trading book positions does not normally exceed the equivalent in Belgian francs of 15 million EUR; 3° the trading book does not exceed at any time 6% of their total operations and the total of the trading book positions does not exceed at any time the equivalent in Belgian francs of 20 million EUR.

Art. 8
§ 1. To calculate, for the purposes of Article 7, the share that the trading book represents in their total operations, establishments will refer to the

total of the balance sheet and off-balance sheet, with the exception of off-balance sheet operations that do not involve credit or market risk.
§ 2. For the assessment of the volume of balance sheet and off-balance sheet operations:

• bonds and other debt securities are taken into account on the basis of their market value or their nominal value;
• stocks and other assimilable values are taken into account on the basis of their market value; and
• derivative instruments are taken into account according to the nominal value or market value of the underlying instruments.
  Long and short positions are added regardless of their sign.

Art. 9
In the event that an establishment exceeds, beyond a short period, one of the limits or both limits set out in Article 7, second paragraph, 1° and 2°, or exceeds one of the limits or both limits set out in Article 7, second paragraph, 3°, the establishment in question must comply with the requirements defined in Article 82, § 2, with regard to its trading book.

Sub-section 3 - Small trading book
Art. 10
Establishments that, although exceeding the limits set in Article 7, have a trading book that can be, in the opinion of the Banking, Financial and Insurance Commission, considered as of minor importance, may use, on a temporary basis and with prior authorization from the Commission, the simplified calculation method described in Article 11, in place of the requirements resulting from Chapters V and VI.

Art. 11
Simplified method for calculating requirements for small trading books referred to in Article 10.
The requirements resulting from Chapters V and VI are replaced by those described below:
1° the net position is calculated separately for each financial instrument; 2° purchased options entail a requirement equal to that of their underlying instrument; the requirement may however not exceed the market value of the option;

3° sold options entail a requirement equal to that of their underlying instrument; 4° equity indices are not broken down and are consequently treated as individual positions; 5° the requirement resulting from net positions in bonds and other debt securities is the sum of the requirements for specific and general risk, calculated as follows:
the requirement for specific risk is calculated for each net position after application of risk weights; an additional requirement for general risk is calculated on each net position in accordance with the table below, based on the residual maturity in the case of fixed-rate instruments, and on the basis of the period remaining until the interest rate is reset in the case of instruments for which the interest rate is reset before its final maturity:

Residual Maturity Requirement (in %)

≤1 year 0.7

1 year and ≤ 5 years 3.25
5 years and ≤ 10 years 5.25
10 years 12.5

6° the requirement resulting from positions in stocks and other values assimilable to stocks is the sum of the requirements for specific and general risk, calculated as follows:
the capital requirement for specific risk amounts to 4% of the sum of the absolute values of short net positions and long net positions, the capital requirement for general risk amounts to 8% of each net position.

Sub-section 4 - Evaluation of positions
Art. 12
When it does not fall under the regime provided for by Article 7, an establishment evaluates its trading book daily at its market value.

Art. 13
In the absence of an easily available and sufficiently representative market value, the establishment evaluates its trading book daily according to prudent methods that it determines and applies consistently.

Chapter II Own funds
Art. 14
§ 1. The following are taken into consideration as elements of own funds:
1° core own funds, strictly speaking, consisting of the elements mentioned under a) and after deduction of the items mentioned under b):
a) elements to include:
i) paid-up capital and share premiums; ii) reserves and retained earnings; iii) the general banking risk fund; b) items to deduct:
i) the loss of the financial year and carried forward loss; ii) establishment costs; iii) intangible fixed assets; iv) the establishment's own shares; v) possible and foreseeable losses and charges for which, in the opinion of the Banking, Financial and Insurance Commission, the necessary value reductions have not been recorded or the necessary provisions constituted; 2° supplementary own funds elements, up to 100% of the core own funds strictly speaking defined in 1° above:
a) revaluation surpluses; b) internal security fund; c) funds raised through indefinite duration securities and other financing instruments and meeting the conditions provided for in § 2; d) subordinated debts as well as cumulative preference shares with fixed maturity that meet the conditions provided for in § 3, their amount being however limited to 50% at most of the core own funds strictly speaking defined in 1° above;

the amount for which the elements referred to here are taken into consideration, is progressively reduced during the five years preceding the repayment date, so that this amount is not higher, at the end of the fifth, fourth, third, second and last year preceding the repayment date, at respectively 80%, 60%, 40%, 20% and 0% of the loan amount. Furthermore, the own funds elements referred to in 1° and 2° a) and b) of this paragraph are only taken into consideration after deduction of tax deferrals, to the extent that they reduce the amount to which the elements can be allocated to cover risks or losses.

§ 2. The securities and financing instruments mentioned in § 1, first paragraph, 2°, c), must meet the following conditions, the compliance with which is subject to prior control by the Banking, Financial and Insurance Commission:
a) they cannot be repaid at the initiative of the creditor and without the prior agreement of the Banking, Financial and Insurance Commission; b) the funds are granted on a subordinated basis; this means that in situations of competition of all creditors on the entire assets of the debtor or the issuer, notably in the event of bankruptcy, request for judicial concordat or voluntary or forced liquidation of the latter, the subordinated creditor irrevocably waives his right to equal treatment compared to other unsecured creditors; in other words, the subordinated creditor accepts that the debtor or the issuer, in these same competition situations, is only required to pay after all other creditors have been paid or that the sums necessary for this purpose have been deposited; c) subordination also applies to the periodic remuneration due; d) the debtor or the issuer has the right to defer the payment of the periodic remuneration due; e) the funds and the periodic remuneration still due can be allocated to the settlement of losses, while allowing the debtor or the issuer to continue its activities.

§ 3. The subordinated debts and cumulative preference shares mentioned in § 1, first paragraph, 2°, d), must meet the following conditions, the compliance with which is subject to prior control by the Banking, Financial and Insurance Commission:
a) they can only be repaid in advance at the initiative of the debtor and with the prior agreement of the Banking, Financial and Insurance Commission; b) their initial duration amounts to at least 5 years; if the duration is indefinite, the notice period amounts to at least 5 years;

c) the funds are granted on a subordinated basis, as defined in § 2, b), above; d) the contract may not contain clauses providing that, under circumstances other than the liquidation of the establishment, the debt must be repaid before the agreed maturity.

§ 4. Without prejudice to deductions to be made in application of legal provisions, own funds are calculated after deducting the following items:

1° participations in affiliated enterprises and in enterprises with which there is a participation link, when these enterprises are credit institutions, investment firms, or other financial establishments whose ordinary activity consists in granting credits or in concluding other operations that are taken into consideration for the calculation of requirements resulting from this regulation;

2° participations in affiliated enterprises and in enterprises with which there is a participation link, when these are insurance enterprises exercising an activity other than that referred to in 1° above;

3° instruments and claims referred to in § 1, first paragraph, 2°, c) and d), and relating to the enterprises mentioned in 1° above;

4° instruments and claims referred to in Article 15, § 1, third paragraph, 3°, and relating to the enterprises mentioned in 1° above;

5° shares and parts of credit institutions, investment firms and other financial establishments as referred to in 1° above, but which are neither affiliated enterprises nor enterprises with which there is a participation link, excluding shares and parts that are part of the trading portfolio, as well as claims and instruments referred to in § 1, first paragraph, 2°, c) and d), and in Article 15, § 1, third paragraph, 3°, issued by these establishments, for the part of the total of shares and parts, claims and instruments referred to here that exceeds 10% of the own funds, as defined in § 1, of the establishment subject to the provisions of this regulation;

6° elements of the establishment's own funds that are held by enterprises in which the establishment has a participation, or by subsidiaries thereof, unless these elements are supplementary own funds elements as referred to in § 1, first paragraph, 2°, and in Article 15, § 1, third paragraph, 3°, and constitute the reinvestment of means that the enterprises referred to have specifically raised for this purpose as financing vehicles from third parties and regarding which these third parties have been expressly informed;

7° claims and other assets, including future claims and other assets, other than those referred to in items 1° to 5° above, on affiliated enterprises and on enterprises with which there is a participation link, as well as commitments for the account of or in favour of these enterprises, unless these claims, other assets and commitments are, in their nature and conditions, justified as ordinary banking operations.

The Banking, Financial and Insurance Commission may exempt the establishment from the obligation to deduct the shares and parts, instruments and claims referred to in 1° to 5° of this paragraph, when their holding is within the framework of a restructuring or rescue operation of the enterprises referred to.

Art. 15

§ 1. Without prejudice to Article 14, an establishment that is required to comply with the own funds requirements resulting from Chapters IV to [VIIIter] and Articles 82, §1, 4° and 84, may use another definition of own funds to cover these requirements.

No part of the own funds thus available may be used simultaneously to comply with other own funds requirements.

The provisions of this paragraph apply mutatis mutandis to the limitation standards set in Article 83 regarding elements belonging to the trading portfolio.

The definition referred to in the first paragraph of this paragraph includes the following elements:

1° own funds as defined in Article 14 not allocated to covering risks arising from Chapter III;

2° net profits from the establishment's trading portfolio, free of all foreseeable charges or dividends, minus losses from other activities, provided that these amounts have not been taken into account in the element referred to in 1°;

3° subordinated debts referred to in § 2 and elements referred to in § 4, subject to the conditions set out in §§ 2 to 4.

§ 2. The subordinated debts referred to in § 1, third paragraph, 3°, must meet the following conditions, the compliance with which is subject to prior control by the Banking, Financial and Insurance Commission:

a) their initial duration is at least two years; if the duration is indefinite, the notice period is at least two years;

b) they are fully paid up and the loan contract does not contain any clause providing that, under circumstances other than the liquidation of the establishment, the debt must be repaid before the agreed maturity, unless prior agreement of the Banking, Financial and Insurance Commission is obtained;

c) neither the principal nor the interest of these subordinated debts may be repaid if such repayment implies that the own funds of the establishment in question fall below a level of 100% of the requirements set in Article 82;

d) the funds are granted on a subordinated basis, as defined in Article 14, § 2, b).

The establishment notifies the Banking, Financial and Insurance Commission of all repayments on these subordinated debts as soon as the establishment's own funds fall below 120% of the requirements set in Article 82.

§ 3. The debts referred to in § 1, third paragraph, 3°, are taken into consideration up to a maximum of 200% of the residual stricto sensu own funds in order to meet the own funds requirements referred to in Chapters IV to [VIIIter] and Articles 82, § 1, 4°, and 84.

§ 4. The establishment may replace the subordinated debts referred to in § 1, third paragraph, 3°, with elements of the nature of those referred to in Article 14, § 1, first paragraph, 2°, a) to d), and which are not otherwise taken into account for the determination of own funds, within the limits provided in § 3.

[Thus modified by Article 2 of the Decree of the Banking, Financial and Insurance Commission of 4 July 2000 (Approved by the Ministerial Decree of 3 August 2000 - Belgian Monitor of 15 August 2000)]

Chapter III Credit Risk

Art. 16

Definition of the notion of "risk-weighted amount"

§ 1. Subject to the provisions contained in the following §§ 2 to 6, the risk-weighted amount, for the application of the solvency ratio provided for in Article 18, includes, in the proportions indicated, the following balance sheet and off-balance sheet items, excluding, for establishments that do not use the possibility referred to in Article 7, the items referred to in Chapter I, Section III, Sub-sections 1 and 3:

1° one hundred percent of claims, excluding those mentioned in 2° and 6°, a), [a’), a’’), a’’’)] of this paragraph; claims that the establishment has securitized with third parties with recourse to the establishment are also included here, as well as future claims resulting from spot transactions in the process of settlement and firm commitments arising from forward transactions, other than issued options and forward transactions referred to in 6°, f) and g);

2° one hundred percent of instruments and claims of the type mentioned in Article 14, § 1, first paragraph, 2°, c) and d), and in Article 15, § 1, third paragraph, 3°;

3° one hundred percent of asset regularization accounts;

4° one hundred percent of other assets, including assets that the establishment has securitized with third parties with recourse to the establishment and other future assets resulting from spot transactions in the process of settlement and firm commitments arising from forward transactions, other than issued options and forward transactions referred to in 6°, f) and g);

5° one hundred percent

a) of commitments arising from acceptances;

b) of commitments of a credit substitute nature under which the establishment is obliged to honour a third party's commitment or pay a replacement sum if that third party does not honour its commitments;

c) of assets encumbered with real security for the account of third parties, in the case where the security has the character of a credit substitute;

6° fifty percent

a) of claims resulting from loans fully secured by mortgages on real estate affected to housing, occupied or rented by the borrower; for loans repayable by replenishment to the reporting establishment, the amount of the claim is calculated after deduction, as the case may be, of the replenishment fund or the mathematical reserve resulting from a life insurance or capitalization contract annexed to the loan;

[a’) of claims resulting from loans granted after 31 May 2000, fully secured by mortgages on offices or commercial premises (buildings “for multiple uses”), located on the territory of Belgium or on the territory of another Member State of the European Union, provided that the latter authorizes a risk weighting of 50% in application of the conditions set out below, loans that must satisfy the following conditions:

i) the 50% weighting applies to the part of the claim that does not exceed the limit calculated according to formula a) or formula b):

a) 50% of the market value of the property in question.
The market value of the property must be determined by two independent experts. They carry out independent valuations at the time the loan is granted, and the loan is granted on the basis of the lower of these two valuations.
The property is revalued at least once a year by an expert. For loans not exceeding one million euros and 5% of the establishment's own funds as referred to in Article 14, the property is revalued at least every three years;

b) 50% of the market value of the property or 60% of its mortgage value, whichever of these two values is lower, in countries that have defined, in legislative or regulatory provisions, rigorous criteria for the evaluation of mortgage value. The mortgage value corresponds to the value of the property calculated by an expert who carries out a prudent evaluation of the future commercial value of the property taking into account its long-term durable characteristics, normal and local market conditions, the current use of the property and other uses that could be given to it. Speculative elements cannot be taken into account in the evaluation of the mortgage value. The mortgage value is justified in writing in a clear and transparent manner. At least every three years or if the market shows a drop of more than 10%, the mortgage value and, in particular, the assumptions retained for the evolution of the market concerned are re-evaluated. In formulas a) and b), the “market value” corresponds to the price at which the property could be sold under private contract between a consenting seller and an unaffiliated buyer (“at arm’s length”) on the date of the evaluation, starting from the hypothesis that the listing of the property on the market is made public, that market conditions allow for a regular sale and that there is a normal delay, given the nature of the property, to negotiate the sale;

ii) the property must be occupied or rented by the owner; the fifty percent weighting is applicable until 31 December 2006; thereafter, loans granted before this date remain subject to the fifty percent weighting until the next possibility of contract adaptation or until their maturity if the contractual clauses cannot be adapted beforehand;

a") of claims resulting from real estate leasing operations concluded after 31 May 2000 and before 31 December 2006 and relating to commercial assets located in the country of the registered office and governed by legal provisions under which the lessor retains full ownership of the leased asset until the lessee exercises its purchase option;

a''') securities and other negotiable instruments covered by mortgage claims, if the Commission considers, taking into account the legal framework in force, that the credit risk associated with these instruments is equivalent to that inherent in claims secured by mortgages, as referred to in point a) or a’); it must in particular be demonstrated to the Commission:

i) that the securities and other negotiable instruments in question are completely and directly covered by a pool of mortgage credits of the same nature as those referred to in point a) or a’) and do not constitute problematic risks at the time of issuance of the securities and negotiable instruments concerned;

ii) that the holders of the securities and negotiable instruments referred to hold, either directly or through a representative acting on their behalf, a right of sufficiently high rank on the underlying mortgaged assets, at least proportional to the securities and negotiable instruments they hold;]

b) commitments resulting from documentary credits with credit risk for the establishment and not meeting the definition given in 7° of this paragraph;

c) commitments not having the character of a credit substitute under which the establishment is obliged to honour a third party's commitment or pay a replacement sum if that third party does not honour its commitments;

d) assets encumbered with real security for the account of third parties, in the case where the security does not have the character of a credit substitute;

e) the unused part of commitments arising from confirmed credit lines with an initial duration of more than one year as well as the unused part of commitments arising from confirmed credit lines by which the establishment promises a short-term negotiable paper issuer to provide replacement or complementary financing when that issuer has not obtained the desired financing through the issuance of such paper in the market;

f) commitments resulting from the issuance of put options on securities and other negotiable instruments;

g) the replacement cost, in the event of counterparty default, of derivative instruments;

the replacement cost is calculated according to the method based on the assessment of market value;

until further notice, establishments [benefiting from the “de minimis” regime provided for in Article 7] may calculate the replacement cost of forward transactions on interest rates, currencies and gold according to the method based on initial risk;

the two methods are described in Article 17;

however, forward transactions on currencies with an initial duration of 14 calendar days or less and [derivative instruments traded on recognized markets] must not be included in the calculation base;

[the Commission may, until the end of 2006, treat over-the-counter derivative instruments that are cleared by a clearing house when the latter acts as a counterparty and all participants fully and daily cover the risk they represent for the clearing house by a pledge, offering protection covering both current risks and potential future risks, as equivalent to derivative instruments traded on recognized markets, as referred to in the previous paragraph, provided that the establishment demonstrates that the pledge given as security offers the same level of protection as a pledge within the meaning of § 6, 4° and 5°, and that the danger of risks for the clearing house accumulating beyond the market value of the pledge is eliminated;]

[h) commitments of a credit substitute nature, as referred to in 5°, a) and b), which are fully secured by mortgages within the meaning of 6°, a), in favour of the reporting establishment, which has a direct right on the security;]

7° twenty percent of commitments resulting from documentary credits with credit risk for the establishment, to the extent that the establishment has an enforceable lien or another equivalent right on the underlying goods and where the credit has a “self-liquidating” character.

§ 2. By derogation from the provisions of § 1, 3°, regularization accounts that the establishment cannot identify based on the counterparty are included in the risk-weighted amount up to 50%.

§ 3. By derogation from the provisions of § 1, the elements referred to in § 1, 1°, 3°, 5° and 6° a) and g),

1° when the counterparty is among the public authorities or establishments mentioned below or when the elements are irrevocably and expressly guaranteed by one of these public authorities or establishments:

a) regional and local public authorities of countries in geographical zone A, with the exception of the Belgian Regions and Communities;

b) the European Investment Bank;

c) multilateral development banks;

d) credit institutions having their registered office in a country of geographical zone A;

e) investment firms having their registered office in a country of geographical zone A;

2° whose initial duration is one year or less and whose counterparty is a credit institution having its registered office in a country of geographical zone B or which are irrevocably and expressly guaranteed by such a credit institution;

3° which are secured by an enforceable lien on securities, issued either by the European Investment Bank or by a multilateral development bank [, or by regional or local public authorities of countries in geographical zone A] ;

4° which represent cash items.

[By derogation from the provisions of § 1, 4°, the unissued and uncalled portion of the capital of the European Investment Fund is included in the risk-weighted amount up to twenty percent.]

§ 4. By derogation from the provisions of § 1, the commitments referred to in § 1, 6°, b), c), d) and e),

1° whose beneficiary is one of the public authorities or bodies mentioned in § 3, 1°, or which are irrevocably and expressly guaranteed by one of these public authorities or establishments;

2° whose initial duration is one year or less and which were contracted for the account of credit institutions having their registered office in a country of geographical zone B or which are irrevocably and expressly guaranteed by these credit institutions;

3° which are secured by an enforceable lien on securities issued either by the European Investment Bank or by a multilateral development bank.

Also included in the risk-weighted amount up to 10% are the commitments referred to in § 1, 6°, f), relating to elements that are weighted at 20% in application of § 3 [, as well as the obligations referred to in Article 11, paragraph 2, of Directive 89/647/EEC of 18 December 1989 which benefit from a ten percent weighting.]

§ 5. By derogation from the provisions of § 1, the commitments referred to in § 1, 7°,

1° whose beneficiary is one of the public authorities or bodies mentioned in § 3, 1°, of this Article or which are irrevocably and expressly guaranteed by one of these public authorities or establishments;

2° whose initial duration is one year or less and which were contracted for the account of credit institutions having their registered office in a country of geographical zone B or which are irrevocably and expressly guaranteed by these credit institutions;

3° which are secured by an enforceable lien on securities, issued either by the European Investment Bank or by a multilateral development bank,

are included in the risk-weighted amount up to 4%.

§ 6. By derogation from the provisions in the preceding paragraphs, the following are not included in the risk-weighted amount,

1° elements that have been deducted from own funds in application of Article 14, § 4, or legal provisions;

2° cash and items assimilated;

3° the elements referred to in § 1, 1°, 3° and 6°, a), when the counterparty is a central public authority or a central bank of a country in geographical zone B and which are also denominated and financed in the borrower's national currency, as well as when the elements referred to here are irrevocably and expressly guaranteed by such a central public authority or such a central bank and are denominated and financed in the national currency common to the guarantor and the borrower;

4° the elements referred to in § 1, 1°, 3°, 5°, 6°, a), b), c), d), e), g) and 7°, whose counterparty belongs to the public authorities or establishments mentioned below, or which are irrevocably and expressly guaranteed by one of these public authorities or establishments, including elements secured by an enforceable lien on securities issued by these public authorities or establishments:

a) the European Communities; b) the central authorities and central banks of countries in geographical zone A; c) the Belgian Regions and Communities; 5° the items referred to in § 1, 1°, 3°, 5°, 6°, a), b), c), d), e), g) and 7°, which are guaranteed by a pledge enforceable against deposits received by the institution or against deposit certificates or other similar paper issued by it and deposited with it; [6° subject to the prior agreement of the Commission, the items referred to in § 3, 1°, a), which have regional or local public authorities of countries in geographical zone A as counterparty, and which, in their country of origin, benefit from a zero percent weighting, including items irrevocably and expressly guaranteed by one of these public authorities.] Nor are the commitments referred to in § 1, 6°, f), which relate to items not included in the risk-weighted volume under this paragraph of this article, included in the risk-weighted volume. § 7. The lower weightings provided for in the preceding paragraphs of this article due to the existence of an express guarantee or an enforceable pledge are applied, in the case of partial coverage, only to the part of the items that is guaranteed. § 8. The calculation of the risk-weighted volume relating to balance sheet and off-balance sheet items, as provided for in this article, is carried out in compliance with the rules applicable to the treatment of these items in the periodic accounting statement, where applicable, after deduction of value reductions and specific provisions relating to the items concerned. [Thus modified by Article 3 of the Order of the Banking, Financial and Insurance Commission of 4 July 2000 (Approved by the Ministerial Order of 3 August 2000 - Belgian Monitor of 15 August 2000)]

Art. 17
§ 1. Calculation of the replacement cost of derivative instruments The replacement cost in the event of counterparty default, for derivative instruments referred to in Article 16, § 1, 6°, g), is [without prejudice to the provisions of this article,] calculated according to one of the methods described below. The notional principal and the underlying amounts taken into consideration for the calculation of the replacement cost must be a relevant criterion for the calculation of the credit risk related to these operations. If, for example, the agreement provides for a multiplication of cash flows, the notional principal or the underlying amount must be adjusted, to take into account the impact of the multiplier on the risk structure of the operation concerned. For operations providing for multiple exchanges of principal, the percentages mentioned below are to be multiplied by the number of payments remaining to be made under the contract.

First method
(Market value-based method)
The replacement cost is defined as the sum of the following elements:
first element: the current replacement cost based on the market value ("marking to market") of the positive value operations; second element: the future potential credit risk, i.e., the product resulting from multiplying the notional principal or the underlying value of each of the ongoing operations by their respective percentage; the percentage is determined as follows, based on the remaining duration:

Remaining Duration (1)	Interest Rate Operations (2)	[Currency or Gold Operations]	Equity Operations	Operations on Other Precious Metals	Other Operations (3)
≤ 1 year	0 %	1 %	6 %	7 %	10 %
> 1 year and ≤ 5 years	0.5 %	5 %	8 %	7 %	12 %
> 5 years	1.5 %	7.5 %	10 %	8 %	15 %

(1) For operations that are structured in such a way as to settle the risk that remains after certain determined payment dates and whose terms are revised in such a way that their market value is, at these dates, brought back to zero, the remaining duration is equal to the period remaining until the next date of revision of the terms. In the case of interest rate operations that meet these criteria and whose remaining duration is more than one year, the percentage may not, however, be less than 0.5 %. (2) For "variable/variable" interest rate swaps in the same currency, no future potential credit risk is calculated. (3) Here are included forward operations on commodities other than precious metals, as well as forward operations that do not fall under another category mentioned in the table and are of a similar nature [(for example, forward operations on basic products)].

Second method
(Initial risk-based method)
The replacement cost is obtained by multiplying the notional principal or the underlying value of each of the ongoing operations by their respective percentage; the percentage is determined as follows, based on the duration:

Duration (1)	Interest Rate Operations	[Currency or Gold Operations]
≤ 1 year	0.5 %	2 %
> 1 year and ≤ 2 years	1 %	5 %
per additional period of one year maximum	+ 1 %	+ 3 %

(1) For [currency or gold operations], the initial duration; for interest rate operations, the remaining duration.

§ 2. Novation and bilateral netting agreements [(netting agreements)] a) For the calculation of the replacement cost referred to in § 1, when an institution has concluded a bilateral novation or netting agreement with a counterparty, the net amounts resulting from this agreement, calculated in the manner determined in point b), may, subject to the prior agreement of the Banking, Financial and Insurance Commission, be weighted instead of the gross amounts concerned. By bilateral novation agreements, it is meant agreements concluded between an institution and its counterparty, under which the reciprocal rights and obligations of the parties are automatically offset so that the novation results in the fixing of a single net amount each time there is a novation and the creation of a new unique, legally binding commitment, which replaces the previous commitments. For the Banking, Financial and Insurance Commission to recognize a risk reduction effect for bilateral novation or netting agreements, these agreements must meet the following conditions:

(i) the institution has concluded with its counterparty a novation or netting agreement creating, with regard to all operations covered by this agreement, a unique legal obligation such that, in the event of non-performance of its obligations by the counterparty due to default, bankruptcy, liquidation or any other similar circumstance, the institution would have the right or obligation, as the case may be, to receive or pay only the net amount of the positive and negative values, evaluated at market price, of the different operations covered by the agreement; (ii) the institution has provided the Banking, Financial and Insurance Commission with written and duly reasoned legal opinions establishing that, in the event of a dispute, the competent courts and administrative authorities would consider that, in the cases described in point (i), the institution's claims and debts are limited to the net amount mentioned in point (i), according to:

• the law applicable in the territory where the counterparty has its statutory seat, but also, if a foreign branch of a company is concerned, according to the law applicable in the territory where said branch is located;
• the law governing the different operations covered by the agreement, and
• the law governing any agreement necessary to execute the novation or netting;
  the legal opinions referred to may, subject to the approval of the Banking, Financial and Insurance Commission, be established by type of novation or netting; (iii) the institution has adequate procedures to regularly verify, taking into account any possible changes in the applicable legislation, the legal validity of the agreements it has concluded; (iv) the agreements do not contain a clause allowing a non-defaulting party to make only limited, or no, payments to the counterparty's default estate (so-called "walkaway" clause). The Banking, Financial and Insurance Commission will not recognize the risk reduction effect unless each of the concerned supervisory authorities is convinced of the legal validity of the novation or netting with regard to the different applicable laws. b) The net amounts referred to in point a) are calculated as follows:

Novation Agreements:
For the application of the first method, the first and second elements are calculated taking into account the novation agreement.
For the application of the second method, the notional principal or the underlying value is calculated taking into account the novation agreement; the percentages in the relevant table are applicable.

Netting Agreements
For the application of the first method, the replacement cost of the operations covered by the netting agreement may, for the calculation of the first element, be calculated taking into account the current theoretical net replacement cost resulting from the agreement; when the netting leads to a net obligation for the institution calculating the net replacement cost, the replacement cost is considered equal to zero. [The second element, the future potential credit risk of the operations covered by the netting agreement, is calculated by applying the formula “PCEred (0.4PCEgross) + (0.6NGR*PCEgross)”, in which formula:
− PCEred = the reduced amount of the future potential credit risk of all operations carried out with a given counterparty that are covered by a bilateral netting agreement;

− PCEgross = the sum of the amounts of the future potential credit risks of all operations carried out with a given counterparty that are covered by the bilateral netting agreement, amounts calculated by applying the first method mentioned in § 1;

− NGR = the “net/gross ratio”, namely the quotient of the net replacement cost of the operations covered by the bilateral netting agreement concluded with the counterparty (numerator) by the gross replacement cost of the same operations covered by the netting agreement concerned concluded with this counterparty (denominator). For the purpose of calculating the future potential credit risk according to the formula indicated above, perfectly matching contracts included in the netting agreement may be considered as forming a single contract whose notional principal is equal to their net amount. Perfectly matching contracts are forward operations on currencies (or similar operations) whose notional principal is equal to the cash flows when these are due on the same day and denominated entirely or partially in the same currency.

For the application of the second method:

• perfectly matching contracts included in a netting agreement are considered as forming a single contract, whose notional principal is equal to their net amount; the percentages fixed in § 1 are applicable by analogy;]
• for other operations included in the following table, the following percentages are applicable to the notional principal calculated without taking into account the netting agreement:

Duration (1)	Interest Rate Operations	[Currency or Gold Operations]
≤ 1 year	0.35 %	1.50 %
> 1 year and ≤ 2 years	0.75 %	3.75 %
per additional period of one year maximum	0.75 %	2.25 %

(1) For [currency or gold operations], the initial duration; for interest rate operations, the remaining duration.

[When a netting agreement also covers forward operations on currencies with an initial duration of at most fourteen calendar days or other derivative instruments that are not to be included in the risk-weighted volume, institutions may also take these instruments into consideration for the calculation of the net amounts referred to above, provided that, when calculating the volume of risks, all similar instruments that are covered by a novation or netting agreement are taken into account, whether they have a positive or negative value.] [Thus modified by Article 4 of the Order of the Banking, Financial and Insurance Commission of 4 July 2000 (Approved by the Ministerial Order of 3 August 2000 - Belgian Monitor of 15 August 2000)]

Art. 18
The capital requirement of an institution for covering credit risk amounts to 8% of the risk-weighted volume.

Chapter IV Settlement and Counterparty Risk
Section I Settlement/Delivery Risk

Art. 19
The institution calculates the price difference to which it is exposed for each operation on bonds or other debt securities [,on equity] or other assets similar to equity [or on basic products], which is not settled after the scheduled settlement date. The price difference to which the institution is exposed is represented by the difference between the agreed settlement price for the bonds or other debt securities [,for equity] or other assets similar to equity [or for basic products], and their market value, when this difference may result in a loss for the institution. The capital requirement corresponding to the risk to which the institution is exposed is obtained by multiplying the difference referred to in the preceding paragraph by the appropriate factor from the second column of the table below:

Number of working days, after the scheduled settlement date	Capital Requirement
5 - 15	8 %
16 - 30	50 %
31 - 45	75 %
46 or more	100 %

[Thus modified by Article 2 of the Order of the Banking, Financial and Insurance Commission of 4 July 2000 (Approved by the Ministerial Order of 3 August 2000 - Belgian Monitor of 15 August 2000)]

Art. 20
The institution may replace the capital requirement referred to in Article 19 with a capital requirement calculated by multiplying the agreed settlement price for each unsettled operation on bonds or other debt securities[,] on equity or other assets similar to equity [or on basic products,] by the appropriate factor from the second column of the table below:

Number of working days, after the scheduled settlement date	Capital Requirement
5 - 15	0.5 %
16 - 30	4.0 %
31 - 45	9.0 %
46 or more	see 2nd paragraph

From the forty-sixth working day after the scheduled settlement date, the capital requirement is equal to the highest amount of:

• 9% of the agreed settlement price;
• the price difference referred to in Article 19, paragraph 2, to which the institution is exposed, in accordance with the last line of the table in Article 19.
  The institution that has opted for the calculation method provided for in this article applies this system consistently.
  [Thus modified by Article 2 of the Order of the Banking, Financial and Insurance Commission of 4 July 2000 (Approved by the Ministerial Order of 3 August 2000 - Belgian Monitor of 15 August 2000)]

Art. 21
Repo/reverse repo and [securities lending/borrowing or basic products lending/borrowing] operations are not covered by Articles 19 and 20.
[Thus modified by Article 2 of the Order of the Banking, Financial and Insurance Commission of 4 July 2000 (Approved by the Ministerial Order of 3 August 2000 - Belgian Monitor of 15 August 2000)]

Section II Counterparty Risk

Art. 22
Incomplete Transactions
An institution that has paid [securities or basic products] before receiving them, or that has delivered [securities or basic products] before receiving payment, bears a capital requirement equal to 8% of the value [of the securities, basic products or amount] due to the institution, multiplied by the applicable risk weighting for the counterparty concerned. In the case of cross-border operations, the capital requirement is only applicable if at least one day has elapsed since the institution made the payment or delivery of [securities or basic products]. [Thus modified by Article 2 of the Order of the Banking, Financial and Insurance Commission of 4 July 2000 (Approved by the Ministerial Order of 3 August 2000 - Belgian Monitor of 15 August 2000)]

Art. 23
Repos/Reverse Repos; [Securities Lending/Borrowing or Basic Products Lending/Borrowing] § 1. In the case of repo operations and [securities lending or basic products lending] involving [securities or basic products] included in the trading portfolio, the institution calculates the difference between the market value [of the securities or basic products] and the amount it has borrowed or the market value of the collateral, when this difference is positive. In the case of reverse repo operations and [securities borrowing or basic products borrowing] involving [securities or basic products] belonging to the trading portfolio, the institution calculates the difference between the amount it has lent or the market value of the collateral and the market value [of the securities or basic products] it has received, when this difference is positive. The amount of the additional collateral may not be taken into account in the calculations described in the preceding paragraphs if its repayment is guaranteed in such a way that the institution making the transfer is always assured that the additional collateral will be returned to it in the event of its counterparty's default. Accrued interest is included in the calculation of the market value of the lent or borrowed amounts and of the collateral. The institution transferring [securities or basic products], or rights relating to the ownership [of securities or basic products], in a repo operation, and the institution lending [securities or basic products] within the framework of a [securities lending or basic products lending] operation, include [these securities or these basic products] in the calculation of their capital requirements under Chapters V [,VI and VIIIbis]. § 2. The capital requirement is equal to 8% of the amount determined in accordance with § 1, multiplied by the risk weighting. [Thus modified by Article 2 of the Order of the Banking, Financial and Insurance Commission of 4 July 2000 (Approved by the Ministerial Order of 3 August 2000 - Belgian Monitor of 15 August 2000)]

Art. 24
Over-the-Counter Derivative Instruments
The capital requirement relating to over-the-counter derivative instruments belonging to the trading portfolio is calculated in accordance with Article 16, § 1, 6°, g), subject to the application of risk weightings.

Section III Other Risks

Art. 25
Risks in the form of brokerage fees, commissions, interest, dividends and margin deposits related to financial futures (futures) and options traded on an exchange, which are not covered by Chapters V, VI and VII or Articles 19 to 23, and which are directly related to the items included in the trading portfolio, are subject to a capital requirement determined in accordance with Chapter III, subject to the application of risk weightings.

Chapter V Interest Rate Risk Resulting from the Trading Portfolio
Section I Long and Short Positions.
Calculation of the Net Position.

Art. 26
This chapter covers positions as defined in Article 30, belonging to the trading portfolio and relating to debt securities and other similar instruments.
Holdings, rights and commitments relating to units in collective investment undertakings are subject to the capital requirements provided for in Chapter III, rather than the requirements set out in this chapter.

Art. 27
For the application of this chapter, the excess of the institution's long (or short) position over the short (or long) position for identical items referred to in Article 26 represents the net position in these items.
All net positions are converted, before their addition, into Belgian francs based on the spot exchange rate.

Art. 28
Long and short positions in instruments referred to in Articles 29 to 32 are treated in accordance with the modalities described in these articles, as positions in the underlying or notional securities.
Forward operations on currencies are treated as two positions in zero-coupon bonds representing the currencies to be paid and received.

Art. 29
Financial futures on interest rates (interest-rate futures), interest rate forward agreements (FRAs) and forward commitments to purchase and sell bonds and other debt securities are treated as combinations of long and short positions. A long position in financial futures on interest rates is considered as the combination of a loan maturing on the delivery date of the financial futures contract and an asset with a maturity equal to that of the instrument or the notional position underlying the financial futures contract in question.

A sold interest rate futures contract is treated as a long position with a maturity equal to the settlement date plus the contract period and a short position with a maturity equal to the settlement date.

In order to calculate the specific risk requirement, the loan and the asset are included in the "central government elements" column of the table in Article 36, and the debt security in the appropriate column of the same table.

Art. 30
For the purposes of Articles 27 and 28, the following definitions apply:

• long position, a position of the establishment that has fixed the interest rate it will receive at a future date; and
• short position, a position of the establishment that has fixed the interest rate it will pay at a future date.

Art. 31
Interest rate options, bond and other debt security options, financial futures contracts on financial instruments (on financial futures), financial swaps (on swaps) and currency options are treated, for the purposes of this Chapter, as if they were positions with a value equal to the amount of the underlying instrument of the option, multiplied by the delta.

The positions thus obtained can be offset with positions of opposite sign in identical underlying securities or derivative instruments.

The delta used is that calculated by the establishment according to a method approved by the Banking, Financial and Insurance Commission or, failing that, that communicated by the market when it is an option traded on an exchange.

The Banking, Financial and Insurance Commission may, when it deems it appropriate from a prudential point of view, require the establishment to use a determined delta or a particular method of calculating the delta.

When the establishment converts its options into underlying instruments based on the delta, it is subject to an additional requirement to cover gamma risk and vega risk.

When the establishment does not convert its options into underlying instruments based on the delta and does not use the scenario method provided for in Article 79, the net position for each option is subject to a requirement equal to that of its underlying instrument. This requirement is limited, with regard to a purchased option, to the market value of that option.

The treatment provided for in this article is also applicable to warrants [...] relating to the same underlyings as those of the aforementioned options.

[Thus amended by Article 5 of the Decree of the Banking, Financial and Insurance Commission of 4 July 2000 (Approved by the Ministerial Decree of 3 August 2000 - Belgian Monitor of 15 August 2000)]

Art. 32
Financial swaps are treated, with regard to general interest rate risk, on the same basis as instruments appearing on the balance sheet.

Consequently, an interest rate swap in which an establishment receives a variable rate and pays a fixed rate is treated as the combination:

• of a long position in a variable rate instrument with a maturity equivalent to the period until the interest rate is reset, and
• of a short position in a fixed rate instrument having the same maturity as the swap itself.

Art. 33
For the purpose of calculating general risk requirements, the establishment that values at market price and manages the interest rate risk of the instruments referred to in Articles 29 to 32 on the basis of discounted cash flows, may use calculation methods based on sensitivity to calculate the positions concerned and is required to use them for any bond or other debt security that is amortized over its residual life and whose principal is not repaid in a single lump sum.

The calculation method and its use by the establishment must meet the conditions set out in Article 77 and be previously approved by the Banking, Financial and Insurance Commission.

The positions are taken into account according to the provisions of Articles 39 to 51.

Option positions remain subject to additional requirements to cover gamma and vega risks.

Art. 34
An establishment that does not use the calculation methods provided for in Article 33 may treat, with regard to general risk, as fully offset any position in instruments referred to in Articles 29 to 32, which meets the following conditions:

• the positions have the same value and are denominated in the same currency;
• the reference rates (for variable rate positions) or coupons (for fixed rate positions) are closely aligned;
• the date for resetting the interest rate or, for fixed coupon positions, the residual maturity respects the following limits:
• less than one month: same day,
• from one month to one year: within seven days,
• more than one year: within thirty days

Section II Specific Risk and General Risk

Art. 35
The establishment classifies its net positions according to the currencies in which they are denominated and calculates the capital requirement for general risk separately in each currency.

Specific risk is calculated for each of the identical elements referred to in Article 27.

Sub-section 1 - Specific Risk

Art. 36
The establishment allocates its net positions to the appropriate categories of the table below based on residual maturities, i.e., up to final maturities, and then multiplies them by the weights indicated.

It adds its weighted positions (whether long or short) in order to calculate its capital requirement for covering specific risk.

Elements of central government	Eligible elements 0 to 6 months	Eligible elements more than 6 to 24 months	Eligible elements more than 24 months	Other elements
0 %	0.25 %	1 %	1.6 %	8 %

When the establishment holds its own bonds or other debt securities in its portfolio, these are not taken into account for the calculation of specific risk.

Central government elements are defined in accordance with Article 38; eligible elements are defined in accordance with Article 37.

Art. 37
Eligible Elements
Eligible elements are defined as long and short positions:
1° in elements referred to in Article 16, § 3, of this regulation; 2° in bonds and other debt securities

• admitted to the listing of at least one regulated market of a Member State of the European Union, and
• considered to be sufficiently liquid and presenting, due to the solvency of the issuer, a default risk of a level comparable to or lower than that of the elements referred to in 1° above;
  3° in bonds and other debt securities sufficiently liquid and presenting, due to the solvency of the issuer, a default risk of a level comparable to or lower than that of the elements referred to in 1° above; the default risk associated with these securities must have been assessed at this level
• by at least two rating agencies recognized by the Banking, Financial and Insurance Commission, or
• by a single rating agency recognized by the Banking, Financial and Insurance Commission provided that another rating agency recognized by the Banking, Financial and Insurance Commission has not assigned them a lower rating;
  an element will be considered as presenting a default risk comparable to or lower than that of the elements referred to in 1° above, when a rating corresponding to an investment grade level has been assigned to it; 4° in bonds and other debt securities issued by companies whose shares are part of the BEL 20 index, provided that a rating agency recognized by the Banking, Financial and Insurance Commission has not assigned them a rating lower than that referred to in 3° above.

When it deems it appropriate from a prudential point of view, the Banking, Financial and Insurance Commission may require an establishment to apply the highest specific risk requirement to an element.

Art. 38
Central Government Elements
Central government elements within the meaning of Article 36 are defined as long and short positions in elements referred to in Article 16, § 6, first paragraph, 3° and following.

Sub-section 2 - General Risk

A. Choice of Method

Art. 39
For the calculation of general risk, the establishment may use

• either a maturity-based method as described in Articles 40 to 45,
• or a duration-based method as described in Articles 46 to 51.

The establishment will apply the chosen method consistently and may only modify this choice with the prior agreement of the Banking, Financial and Insurance Commission.

B. Calculation of General Risk Based on Maturity

Art. 40
The calculation of the capital requirement for covering general risk involves several steps described in Articles 41 to 45:

• net positions are first weighted according to their maturity as explained in Article 41;
• subsequently, these weighted positions may be reduced:
• when a weighted position is held in parallel with a weighted position of opposite sign within the same maturity band, and
• when the weighted positions of opposite sign belong to different maturity bands, the extent of this reduction varying depending on whether the two positions belong to the same zone and according to which of the three zones (groups of maturity bands) they belong to.

Art. 41
The establishment allocates its net positions to the appropriate maturity bands in the second or third column, as the case may be, of the table in Article 43.

It proceeds with this allocation based on the residual maturity in the case of fixed rate instruments, and based on the period remaining until the interest rate is reset in the case of instruments for which the interest rate is reset before their final maturity.

The establishment also makes a distinction between bonds or other debt securities with a coupon of 3% or more and those with a coupon of less than 3%, and therefore registers them in the second or third column of the table.

It then multiplies each position by the weight indicated in the fourth column of the table for the relevant maturity band.

Art. 42
The establishment then sums the weighted long positions and the sum of the weighted short positions in each maturity band.

The amount corresponding to the weighted long positions that are offset by weighted short positions in a given maturity band constitutes the offset weighted position in that band.

The remaining long or short position constitutes the unoffset weighted position in that same band.

The establishment calculates the total of the weighted positions offset in all bands.

Art. 43
The establishment calculates the total of the unoffset weighted long positions in the bands of each of the zones in the table below to obtain the unoffset weighted long position of each zone.

Similarly, the unoffset weighted short positions of the bands of each zone are added to provide the unoffset weighted short position of that zone.

The part of the unoffset weighted long position of a zone that is offset by the unoffset short position of the same zone constitutes the offset weighted position of that zone.

The part of the unoffset weighted long or short position of a zone that cannot be offset in this way constitutes the unoffset weighted position of that zone.

Maturity Bands	Weighting	Assumed Interest Rate Variation (%)
Zone	Coupon 3% or more	Coupon less than 3%
(1)	(2)	(3)	(4)	(5)
One	> 0 ≤ 1 month	> 0 ≤ 1 month	0	-
	> 1 ≤ 3 months	> 1 ≤ 3 months	0.2	1
	> 3 ≤ 6 months	> 3 ≤ 6 months	0.4	1
	> 6 ≤ 12 months	> 6 ≤ 12 months	0.7	1
Two	> 1 ≤ 2 years	> 1 ≤ 1.9 years	1.25	0.9
	> 2 ≤ 3 years	> 1.9 ≤ 2.8 years	1.75	0.8
	> 3 ≤ 4 years	> 2.8 ≤ 3.6 years	2.25	0.75
Three	> 4 ≤ 5 years	> 3.6 ≤ 4.3 years	2.75	0.75
	> 5 ≤ 7 years	> 4.3 ≤ 5.7 years	3.25	0.7
	> 7 ≤ 10 years	> 5.7 ≤ 7.3 years	3.75	0.65
	> 10 ≤ 15 years	> 7.3 ≤ 9.3 years	4.5	0.6
	> 15 ≤ 20 years	> 9.3 ≤ 10.6 years	5.25	0.6
	> 20 years	> 10.6 ≤ 12 years	6	0.6
	> 12 ≤ 20 years		8	0.6
	> 20 years		12.5	0.6

Art. 44
§ 1. The establishment calculates the amount of the unoffset weighted long (short) position of zone one that is offset by the unoffset weighted short (long) position of zone two. It thus obtains what is called in Article 45 the offset weighted position between zones one and two.

§ 2. The same calculation is then performed for the part of the residual unoffset weighted position of zone two and the unoffset weighted position of zone three, in order to calculate the offset weighted position between zones two and three.

§ 3. The establishment may reverse the order of calculation of the preceding paragraphs and calculate the offset weighted position between zones two and three before calculating the offset weighted position between zones one and two.

§ 4. The balance of the unoffset weighted position of zone one is then offset with what remains of that of zone three after offsetting with zone two, in order to calculate the offset weighted position between zones one and three.

§ 5. The residual weighted positions resulting from the three distinct offsetting operations set out in §§ 1 to 4 are then added to form the residual unoffset weighted position.

Art. 45
The capital requirement of the establishment is, per currency, equal to the sum of the following elements:
a) 10% of the sum of the offset weighted positions of all maturity bands; b) 40% of the offset weighted position of zone one; c) 30% of the offset weighted position of zone two; d) 30% of the offset weighted position of zone three; e) 40% of the offset weighted positions between zones one and two, and between zones two and three; f) 150% of the offset weighted position between zones one and three; g) 100% of the absolute value of the residual unoffset weighted position.

The capital requirement of the establishment for all currencies is equal to the sum of the requirements calculated for each of the currencies.

C. Calculation of General Risk Based on Duration

Art. 46
The establishment takes the market value of each fixed rate bond or other debt security and calculates its yield to maturity, which is the implicit discount rate of that security.

In the case of variable rate instruments, the establishment takes the market value of each instrument and then calculates its yield assuming that the principal is due at the next interest rate reset.

Art. 47
The establishment then calculates the modified duration of each bond or other debt security based on the following formula:

Modified Duration = Duration (D) / (1 + r)

wherein

D = [Σ (t * C_t / (1+r)^t)] / C

from t=1 to m

r = yield to maturity in accordance with Article 46, C = cash payment at time t, m = total maturity as defined in Article 46.

Art. 48
The establishment classifies each bond or other debt security, based on the modified duration of the instrument, into the appropriate zone of the following table:

Zone	Modified Duration	Assumed Interest Rate Variation (%)
(1)	(2)	(3)
One	> 0 ≤ 1	1
Two	> 1 ≤ 3.6	0.85
Three	> 3.6	0.7

Art. 49
The establishment calculates the weighted position based on the duration of each instrument by multiplying its market value by its modified duration and by the assumed interest rate variation when it is an instrument affected by that particular modified duration (see column 3 of the table in Article 48).

Art. 50
The establishment calculates its long and short positions, weighted based on duration, in each zone.

The amount of weighted long positions offset by weighted short positions in each zone constitutes the offset weighted position based on duration in that zone.

The establishment then calculates the unoffset weighted position based on duration of each zone.

It then applies the system described in Article 44 for unoffset weighted positions.

Art. 51
The capital requirement of the establishment is equal, per currency, to the sum of the following elements:
a) 2% of the offset weighted position based on duration of each zone; b) 40% of the offset weighted positions based on duration between zones one and two and between zones two and three; c) 150% of the offset weighted position based on duration between zones one and three; d) 100% of the absolute value of the residual unoffset weighted position based on duration.

The capital requirement of the establishment for all currencies is equal to the sum of the requirements calculated for each of the currencies.

Chapter VI Equity Position Risk Resulting from the Trading Portfolio

Section I Calculation of Net Position

Art. 52
This Chapter covers positions belonging to the trading portfolio and relating to equity securities and other similar instruments.

Holdings, rights and commitments relating to units in collective investment undertakings are subject to the capital requirements provided for in Chapter III, rather than the requirements set out in this Chapter.

Art. 53
For the application of this Chapter, the excess of the establishment's long (or short) position over the short (or long) position for identical elements referred to in Article 52 represents the net position in these elements.

All net positions are converted, before their addition, into Belgian francs based on the spot exchange rate.

Art. 54
Positions in derivative instruments or convertible securities referred to in Articles 55 to 57 are treated in accordance with the modalities described in these articles, as positions in the underlying or notional security or securities.

Art. 55
Equity options and other securities assimilable to equities or stock indices are treated, for the purposes of this Chapter, as if they were positions with a value equal to the amount of the underlying instrument of the option, multiplied by the delta.

The positions thus obtained can be offset with positions of opposite sign in identical underlying securities or derivative instruments.

The delta used is that calculated by the establishment according to a method approved by the Banking, Financial and Insurance Commission or, failing that, that communicated by the market when it is an option traded on an exchange.

The Banking, Financial and Insurance Commission may, when it deems it appropriate from a prudential point of view, require the establishment to use a determined delta or a particular method of calculating the delta.

When the establishment converts its options into underlying instruments based on the delta, it is subject to an additional requirement to cover gamma risk and vega risk.

When the establishment does not convert its options into underlying instruments based on the delta and does not use the scenario method provided for in Article 79, the net position for each option is subject to a requirement equal to that of its underlying instrument. This requirement is limited, with regard to a purchased option, to the market value of that option.

The treatment provided for in this article is also applicable to warrants [...] and covered warrants relating to the same underlyings as those of the aforementioned options.

[Thus amended by Article 5 of the Decree of the Banking, Financial and Insurance Commission of 4 July 2000 (Approved by the Ministerial Decree of 3 August 2000 - Belgian Monitor of 15 August 2000)]

Art. 56
Securities convertible into equities or other securities assimilable to equities may be treated as if they were positions in equities or other securities assimilable to equities with a value equal to the amount of the instrument into which the securities can be converted, multiplied by the delta.

The positions thus obtained can be offset with positions of opposite sign in identical underlying securities or derivative instruments.

However, 10% of the positions offset by positions resulting from the conversion of convertible securities will remain subject to the requirements of this Chapter.

Art. 57
Financial futures contracts on stock indices and the delta equivalents of options on financial futures contracts on stock indices may be broken down into positions in each of the equities or other securities assimilable to equities that constitute them.

These positions may be treated as underlying positions in the equities or other securities assimilable to equities concerned and may be offset with positions of opposite sign in the underlying equities and other securities assimilable to equities themselves, where applicable.

Art. 58
The establishment sums all its net long positions and the sum of all its net short positions, per market.

The total of these two sums represents its overall gross position.

The excess of one sum over the other represents its overall net position.

Section II Specific Risk
Art. 59
§ 1. The institution multiplies its global gross position by 4% in order to calculate its own funds requirement for covering specific risk.
§ 2. The own funds requirement for covering specific risk is reduced to 2% for diversified portfolios of equities and other securities assimilable to equities, which are highly liquid and meet the following conditions:

• [it cannot be issuers who have issued only bonds and other debt securities calling for an 8% requirement according to Article 36 or calling for an own funds requirement lower only by virtue of a guarantee obtained;]
• no individual net position may represent more than 5% of the value of the entire portfolio of equities and other securities assimilable to equities of the institution;
  however, positions may individually reach 10% of the value of the entire portfolio of equities and other securities assimilable to equities of the institution, provided that the total of these positions does not exceed 50% of the portfolio. § 3. The own funds requirement covering specific risk relating to a financial futures contract on a stock index or the delta equivalent of an option on a financial futures contract on a stock index is reduced to:
• 0% when the stock index in question is traded on an exchange and widely diversified;
• 2% when the stock index concerned is traded on an exchange and poorly diversified.
  [Thus amended by Article 5 of the decree of the Banking, Financial and Insurance Commission of 4 July 2000 (Approved by the ministerial decree of 3 August 2000 - Belgian Monitor of 15 August 2000)]

Section III General Risk
Art. 60
The own funds requirement for covering general risk is equal to the sum of the absolute values of the global net positions per market of the institution, multiplied by 8%.

Chapter VII Firm Commitment and Good Performance Guarantee
Section I Firm Commitment
Art. 61
In the event of a firm commitment for debt securities or property titles, the procedure described in Article 62 may be used to determine the own funds requirement corresponding to the operation concerned.
Art. 62
§ 1. First, the net position is calculated by deducting the firm commitment position subscribed or taken over by third parties based on a formal agreement.
§ 2. Second, the net position is reduced by applying the following reduction factors:

• zero business day: 100%,
• first business day: 90%,
• second and third business days: 75%,
• fourth business day: 50%,
• fifth business day: 25%,
• beyond the fifth business day: 0%.
  For the application of this article, "zero business day" means the business day on which the irrevocable commitment to accept a known quantity of securities is taken, at an agreed price.
  § 3. Third, the reduced net position is incorporated into the calculation of the own funds requirement in accordance with Chapters V and VI.

Section II Good Performance Guarantee
Art. 63
In the case where the institution provides a good performance guarantee for an operation involving debt securities or property titles, it incorporates into its positions, for the determination of the requirements resulting from Chapters V and VI, the following proportions of the net good performance guarantee commitment:

• the fifth business day preceding the zero business day: 25%,
• the fourth business day preceding the zero business day: 50%,
• the second and third business days preceding the zero business day: 75%,
• the business day preceding the zero business day: 90%,
• the zero business day: 100%
  For the application of this article, "zero business day" means the business day on which the institution must execute the obligations incumbent upon it due to the good performance guarantee provided.
  For the period ending on the sixth business day preceding the zero business day and starting on the day the institution provides a good performance guarantee, the institution is subject to a requirement amounting to 8%, calculated on 10% of the amount of the net commitment, after application of risk weightings.

Section III Organization
Art. 64
Institutions must put in place adequate systems to monitor and control risks

• of firm commitment during the period between the day of the initial commitment and the first business day, or
• of good performance guarantee during the period between the day the institution provided a good performance guarantee and the fifth business day preceding the zero business day,
  taking into account the risks incurred on the markets in question.

Chapter VIII Foreign Exchange Risk
Art. 65
The present chapter covers net positions resulting from the entire activity of the institution and which relate to

• currencies;
• gold;
  [...].
  [Thus amended by Article 5 of the decree of the Banking, Financial and Insurance Commission of 4 July 2000 (Approved by the ministerial decree of 3 August 2000 - Belgian Monitor of 15 August 2000)] Art. 66 Net Position The institution calculates its net position separately in each of the currencies, including the Belgian franc, [and] in gold [...]. The net position is the sum of the following elements, positive or negative:
• the net spot position, that is to say all asset elements minus all liability elements, including accrued but unpaid interest;
• the net forward position, that is to say all amounts receivable minus all amounts payable under forward foreign exchange [and] gold operations [...], including operations involving a firm commitment to acquire, or sell, an asset at a future date;
• irrevocable guarantees, and similar instruments, of which it is certain that they will be called;
• future net receipts and expenditures which are not yet due but which have already been covered;
• the delta equivalent calculated on the basis of the total portfolio of options on foreign exchange [and] gold [...];
• the market value of options other than on foreign exchange [and] gold [...].
  For the calculation of the net position in gold [...], "amount" means the quantity of these elements expressed in grams.

The institution may exclude from the calculation of the net position the positions it has deliberately taken in order to hedge against the negative effect of exchange rates on its own funds ratio. Such positions must have a structural character and must not result from the trading portfolio. The exclusion of these positions or any modification of the conditions thereof requires the prior authorization of the Banking, Financial and Insurance Commission. The treatment described in the previous paragraph may be applied to positions relating to elements that have been deducted from own funds. [Thus amended by Article 5 of the decree of the Banking, Financial and Insurance Commission of 4 July 2000 (Approved by the ministerial decree of 3 August 2000 - Belgian Monitor of 15 August 2000)] Art. 67 Net positions in composite currencies may be broken down, for the purpose of calculating the net position by currency, into the currencies that compose them based on the quotas in force. Art. 68 The institution may use the net present value for the calculation of the open net position in each currency [and in gold]. This method must be applied consistently, by activity or coherent set of activities. The Banking, Financial and Insurance Commission may prescribe the use of a discounting method or the determination of interest rates used. [Thus amended by Article 5 of the decree of the Banking, Financial and Insurance Commission of 4 July 2000 (Approved by the ministerial decree of 3 August 2000 - Belgian Monitor of 15 August 2000)] Art. 69 Global Net Position in Foreign Currency The net short and long positions in each currency, with the exception of the Belgian franc, determined in accordance with Articles 66 to 68, are converted at the spot rate of the Belgian franc. They are then added separately to provide respectively

• the total of net short positions in foreign currency, and
• the total of net long positions in foreign currency.

The highest of the absolute values of these two totals constitutes the global net position in foreign currency of the institution.
Art. 70
[The own funds requirement for covering foreign exchange risk on currency positions amounts to 8% of the global net position in foreign currency of the institution.
If its global net position in foreign currency does not exceed 2% of the total of its own funds, the institution is not subject to any own funds requirement for covering foreign exchange risk.
Until 31 December 2004, the own funds requirement for covering foreign exchange risk on currency positions amounts to 8% of the part of the global net position in foreign currency that exceeds 2% of the total of own funds.]
[Thus amended by Article 5 of the decree of the Banking, Financial and Insurance Commission of 4 July 2000 (Approved by the ministerial decree of 3 August 2000 - Belgian Monitor of 15 August 2000)] Art. 71 Gold [...]
The net positions in gold [...] referred to in Article 65 are treated separately.
The net long and short positions in gold [...] are converted at the spot rate of the Belgian franc.
The own funds requirement for covering foreign exchange risk on the net position in gold amounts to 8% of the net position in gold, long or short, of the institution.
[...].
[Thus amended by Article 5 of the decree of the Banking, Financial and Insurance Commission of 4 July 2000 (Approved by the ministerial decree of 3 August 2000 - Belgian Monitor of 15 August 2000)] Art. 72 When an institution does not convert its options into underlying instruments based on delta and does not use the scenario method provided for in Article 79, the own funds requirements relating to options may be calculated separately. These requirements are then added to the other requirements calculated in accordance with this chapter to form the total requirement resulting from foreign exchange risk.

The requirement relating to each option is then equal to 8% of the highest amount of the counter-value in Belgian francs, based on the spot rate:

• of the amount to be received in the event of exercise of the option,
• of the amount to be paid in the event of exercise of the option;
  [...].
  The requirement relating to a purchased option may not, however, exceed the market value of this option.
  [Thus amended by Article 5 of the decree of the Banking, Financial and Insurance Commission of 4 July 2000 (Approved by the ministerial decree of 3 August 2000 - Belgian Monitor of 15 August 2000)] Art. 73 Currencies Closely Correlated Institutions that have adequate methods for observing and calculating correlations between pairs of currencies may, subject to the prior agreement of the Banking, Financial and Insurance Commission, calculate the own funds requirement relating to positions in currencies presenting a close correlation according to the method described in this article. A pair of currencies can only be considered as presenting a close correlation to the extent that the loss, calculated on the basis of daily data on exchange rates recorded during the three or five years preceding, which occurs on equal and opposite net positions of such currencies during the following ten business days and which is equal to or less than 4% of the value of the hedged position in question (expressed in Belgian francs) has a probability of at least
• 99% in the event of using an observation period of three years, or
• 95% in the event of using an observation period of five years.
  The own funds requirement concerning the hedged position of two currencies presenting a close correlation is 4% of the value of the net hedged position.
  The own funds requirement for non-hedged net positions of currencies presenting a close correlation, and for all net positions in other currencies amounts to 8% multiplied by the highest of the absolute values of the total of net short positions, or of net long positions in these currencies after deduction of hedged positions in currencies presenting a close correlation.

Art. 74
Institutions may remove net positions in currencies that fall under a legally binding inter-state agreement, aimed at limiting their deviation with respect to other currencies covered by the same agreement, from any of the methods provided for in the preceding articles that they apply. Institutions calculate their hedged net positions in these currencies and subject them to an own funds requirement that is not less than half of the maximum deviation permitted fixed in the intergovernmental agreement in question for the currencies in question. Non-hedged net positions in these currencies are treated in the same manner as other currencies. Art. 75 By derogation from the preceding articles of this chapter, institutions may[, until 31 December 2004] use another method meeting the conditions fixed by Article 78. [Thus amended by Article 5 of the decree of the Banking, Financial and Insurance Commission of 4 July 2000 (Approved by the ministerial decree of 3 August 2000 - Belgian Monitor of 15 August 2000)] Art. 76 When an institution converts its options based on delta, it is subject to an additional requirement to cover gamma risk and vega risk.

[Chapter VIIIbis Commodity Risk
Art. 76.1
The present chapter covers positions resulting from the entire activity of the institution that relate to commodities, including commodity derivatives.
For the purposes of this chapter, the notion of "commodities" also includes

• precious metals, other than gold and derivatives on gold;
• commodities or rights secured relating to the ownership of commodities that the institution transfers by means of a repurchase operation, as well as commodities that the institution lends as part of a commodity lending agreement.
  Art. 76.2
  § 1. The institution calculates its position in each of the commodities in which it is active.
  The institution may also consider the following positions as positions in the same commodity:
• positions in different sub-categories of commodities when these can be delivered for one another, and
• positions in similar commodities if these are easily substitutable and if it is possible to establish between price movements a correlation of 90% over a period of at least one year.
  Positions concerning stock financing may be excluded from the scope of this chapter.
  § 2. Each position in commodities is expressed in standard units of measurement. The conversion is done at the spot rate of the euro.
  § 3. When the short position matures before the long position, the institution must take measures to protect itself against the risk of insufficient or reduced liquidity that may arise on certain markets.
  Art. 76.3
  § 1. Financial futures contracts on commodities and forward commitments relating to the purchase or sale of commodities are treated as notional amounts expressed in standard units of measurement. These instruments receive a maturity referring to the expiration date.

§ 2. Commodity swap contracts, one leg of which is a fixed price and the other the current market price, are treated, in the maturity ladder method, as a set of positions equal to the notional amount of the contract, with a position for each payment of the swap contract carried in the corresponding range of the maturity ladder. Positions will be long if the institution pays a fixed rate and receives a variable rate and short in the opposite case. Commodity swap contracts whose legs relate to different products are carried, in the maturity ladder method, in the corresponding range of the table. § 3. Options on commodities are treated, for the purposes of this chapter, as if they were positions of value equal to the amount of the underlying instrument of the option, multiplied by the delta. Positions thus obtained may be hedged with positions of opposite sign for the same underlying commodity (or commodity derivative). The delta used is that calculated by the institution according to a mode approved by the Commission or, failing that, that communicated by the market when it is an option traded on an exchange. The Commission may, when it deems it appropriate from a prudential point of view, impose on the institution to use a determined delta or a particular mode of calculation of delta. When the institution converts its options into underlying instruments based on delta, it is subject to an additional requirement to cover other risks. [When the institution does not convert its options into underlying commodities based on delta and does not use the scenario method provided for in Article 79, the net position for each option is subject to a requirement equal to that of the underlying commodity of the option. This requirement is limited, for a purchased option, to the market value of this option.] The treatment provided for in this article is also applicable to warrants on commodities. [Thus amended by Article 2 of the decree of the Banking, Financial and Insurance Commission of 8 May 2001 (Approved by the ministerial decree of 12 June 2001 - Belgian Monitor of 15 June 2001)] Art. 76.4

§ 1. The calculation of solvency requirements for covering commodity risk is carried out according to one of the methods set out below.
§ 2. Maturity Ladder Method.
(a) All positions in the commodity concerned and all positions considered as positions in the same commodity in accordance with Article 76.2, § 1, are assigned to the adequate maturity ranges of the table reproduced below.
Physical stocks are assigned to the first range.
Maturity Ranges Rate Volatility Coefficient (in %)

0 ≤ 1 month 1.50

1 ≤ 3 months 1.50
3 ≤ 6 months 1.50
6 ≤ 12 months 1.50
1 ≤ 2 years 1.50
2 ≤ 3 years 1.50
3 years 1.50
For the purposes of paragraph 1, positions in the same commodity may be hedged and assigned to the adequate maturity ranges on a net basis provided that it is

• positions in contracts maturing on the same date, or
• positions in contracts maturing within an interval of ten days if the contracts are traded on markets that have daily delivery dates.
  (b) The institution then establishes the sum of long positions and that of short positions in each range. The amount of the first (second) that are hedged by the second (first) in a given range, constitutes the hedged position in this range, while the residual long or short position represents the unhedged position of this same range. The part of the long (short) position not hedged in a given maturity range that is hedged by the short (long) position not hedged in a subsequent range, constitutes the hedged position between these two ranges. The part of the long or short position not hedged that cannot be thus hedged, represents the unhedged position. (c) The own funds requirement of the institution for each commodity, calculated on the basis of the corresponding maturity ladder, is equal to the sum of the following elements:

(i) the total of hedged long and short positions, multiplied by the appropriate rate volatility coefficient, indicated for each maturity range in the second column of the table reproduced above, and by the spot rate of the commodity; (ii) the hedged position between two maturity ranges for each range in which an unhedged position from a previous range is carried, multiplied by 0.6% (namely the "carry rate") and by the spot rate of the commodity; (iii) the residual unhedged positions, multiplied by 15% (namely the "outright rate") and by the spot rate of the commodity. (d) The total own funds requirement of the institution for covering commodity risk is equal to the sum of the solvency requirements calculated in accordance with point (c) above for each of the commodities in which the institution is active. § 3. Simplified Method. (a) The own funds requirement of the institution for each commodity is equal to the sum of the following elements:
(i) 15% of the net position, long or short, multiplied by the spot rate of this product; (ii) 3% of the gross position, long and short, multiplied by the spot rate of this product.
The excess of the long (short) position of the institution over its short (long) position for the same commodity and for financial futures contracts, options and warrants on this same commodity represents its net position for this commodity. For the calculation of the net position, positions in derivatives are treated, according to the modalities specified in Article 76.3, as positions in the underlying commodity. (b) The total own funds requirement of the institution for covering commodity risk is equal to the sum of the solvency requirements calculated in accordance with point (a) above for each of the commodities in which the institution is active.] [Thus amended by Article 6 of the decree of the Banking, Financial and Insurance Commission of 4 July 2000 (Approved by the ministerial decree of 3 August 2000 - Belgian Monitor of 15 August 2000)]

Chapter VIIter Internal Models for Market Risks

Art. 76.5
§ 1. The Commission may, under certain conditions, authorize institutions to calculate their capital requirements for covering the risks referred to in Chapters V, VI, VIII and VIIIbis by applying the internal mathematical models they use for monitoring and managing their market risks. These models may be applied in place of the standardized methods described in the aforementioned chapters, or in combination with them.

§ 2. Institutions may use their own internal model for calculating the regulatory capital requirement referred to in § 1, provided that they have previously obtained the express authorization of the Commission and that the Commission has recognized the model.

For the Commission to recognize an internal model, the institution concerned must comply with a number of standards concerning the model and its use. These minimum qualitative and quantitative standards are defined below.

Art. 76.6
Qualitative Standards

§ 1. The Commission will only recognize a model if it is demonstrated to it that the model is part of a risk management process based on sound design and implemented in an integral manner.

§ 2. To satisfy the requirement of § 1, the following minimum conditions must be met:

i) the institution's internal risk measurement model is closely integrated into the daily management of these risks and serves as the basis for an adequate management information system (with reports addressed to management concerning the degree of exposure of the institution and the results);

ii) the institution has a risk management unit, which is independent of the units responsible for market activity and which reports directly to senior management; this unit is responsible for the configuration and operation of the institution's risk management system, the development of a limit system, as well as the preparation of daily risk reports and the analysis of the results produced by the model;

iii) the institution's board of directors and management are actively involved in the risk management process, including the use of internal models; the daily reports produced by the risk management unit must contain all relevant information; they are transmitted, for examination, to members of management with sufficient authority to require a reduction of positions taken by individual traders or a reduction in the total degree of exposure of the institution;

iv) the institution has, particularly in the risk management and internal audit units, sufficient staff capable of using, monitoring and ensuring the administrative processing (back-office) of the models used;

v) the institution has established adequate procedures to ensure and monitor compliance with documents establishing instructions and internal controls relating to the overall functioning of the risk measurement system;

vi) the institution's models have demonstrated that they measure risks with sufficient accuracy;

vii) the institution frequently applies a rigorous crisis simulation program and has a methodology on the basis of which crisis scenarios can be identified and implemented; the results of these simulations are examined by management and are reflected, in particular, in the policies and limit system concerning the institution's risks;

viii) the institution carries out, as part of its periodic internal control process, an independent analysis of its risk measurement system; this analysis must cover the units responsible for market activity and risk management; an assessment of the overall risk management process must be carried out at least once a year; this assessment must take into account at least:
− the adequacy of the documentation concerning the system and risk management processes, as well as the organization of the risk management unit; − the integration of market risk measurements into daily risk management, as well as the integrity of the management information system; − the approval procedures for models and risk assessment and management systems used within the institution; − the nature and extent of market risks identified by the institution and captured by the risk measurement model, as well as the validation of any significant modification to the risk measurement process; − the accuracy and completeness of data relating to positions, volatility and correlations, as well as value and risk sensitivity calculations; − the procedures used by the institution to control the consistency, timeliness and reliability of the data used in internal models as well as the independence of sources; − the procedures used by the institution to evaluate ex post controls carried out to verify the accuracy of the models and in particular their correct prediction of risks.

§ 3. The institution monitors the accuracy and effectiveness of its models through periodic ex post controls; ex post controls on actual portfolio value changes must provide a comparison, for each business day, between the value-at-risk measurement (“value-at-risk”) on one day calculated by the institution's model based on end-of-day positions and the one-day change in portfolio value observed at the end of the following business day; ex post controls on hypothetical portfolio value changes are based on a comparison between the portfolio value at the end of the day and its value, with unchanged composition, at the end of the following day; the Commission examines the institution's ability to carry out ex post controls on both actual and hypothetical changes in portfolio value; institutions must take appropriate measures to improve their ex post control program if it is deemed insufficient.

§ 4. For the purpose of calculating the capital requirement for covering the specific risk related to positions in negotiable debt securities and equity securities, the internal model must, without prejudice to the provisions set out below, meet in particular the following conditions:
− explain the historical price variation in the portfolio; − reflect concentration in terms of volume and change in portfolio composition; − not be affected by a volatile environment; − be justified by ex post controls to establish whether specific risk has been correctly taken into account; institutions using models that do not meet the above conditions are subject to a separate capital requirement for covering specific risk, calculated in accordance with the standardized method described in Chapters V and VI.

Art. 76.7
Quantitative Standards and Capital Requirements

§ 1. Each internal model recognized by the Commission must capture the relevant market risk factors, taking into account the markets and instruments in which the institution is active. The following minimum conditions must be met:

i) with regard to interest rate risk, the internal model includes a series of risk factors corresponding to interest rates on each currency in which the institution holds balance sheet or off-balance sheet positions sensitive to interest rates. The institution models yield curves using one of the generally accepted methods. For risky positions in major currencies and on major markets, the yield curve is divided into a minimum of six maturity bands, in order to capture the variation in interest rate volatility throughout the curve. The risk measurement system must also take into account the risk of imperfect correlation of variations, in the same currency, between different yield curves.

ii) with regard to exchange rate risk, the risk measurement system includes risk factors corresponding to gold and the various currencies in which the institution's positions are denominated.

iii) with regard to equity securities risk, the risk measurement system includes a distinct risk factor for at least each of the markets on which the institution holds significant positions.

iv) with regard to commodity risk, the risk measurement system includes a distinct risk factor for at least each of the commodities in which the institution holds significant positions. The risk measurement system must account for the risk associated with movements showing imperfect correlation between similar (but not identical) commodities, as well as that associated with price variations due to maturity mismatches. It must also take into account market characteristics, including delivery dates and the margin of maneuver to unwind positions. The Commission ensures that the model adequately captures all significant price risks related to options positions or similar positions and that all other risks not captured by the model are adequately covered by capital. The Commission may authorize institutions to use empirical correlations within risk categories and between them, if it considers that the system used by the institution to measure these correlations is sound and is implemented in an integral manner. The calculation of value-at-risk must comply with the following minimum quantitative standards:

i) calculation of value-at-risk at least daily;

ii) one-sided confidence interval of 99%;

iii) holding period equivalent to a minimum of ten business days;

iv) historical observation period of at least one year, unless a shorter observation period is justified by a significant increase in price volatility;

v) updating of historical series at least quarterly.

§ 2. The capital requirement calculated by applying the model recognized by the Commission in accordance with Article 76.5, is equivalent to the higher of the following two amounts:

i) the previous day's value-at-risk measurement, as calculated by the model;

ii) the average of daily value-at-risk measurements over the previous sixty business days, multiplied by the multiplication factor mentioned in § 3, which is, where applicable, increased by the “supplementary factor” referred to in § 4.

§ 3. The multiplication factor referred to in § 2, ii), is at least equal to “3”, unless, for prudential reasons, the Commission imposes a higher factor between “3” and “4” (“4” included).

§ 4. The supplementary factor referred to in § 2, ii), varies between “0” and “1” (“1” included) and is calculated in accordance with the table reproduced below, based on the number of “overshootings” identified by the institution's ex post control for the last 250 business days. Institutions must calculate overshootings uniformly based on controls of either actual or hypothetical changes in portfolio value. There is an overshooting when the portfolio value change on one day is greater than the corresponding one-day value-at-risk measurement calculated by the institution's model. The number of overshootings is calculated at least quarterly.

Number of overshootings Supplementary factor

less than 5 0.00
5 0.40
6 0.50
7 0.65
8 0.75
9 0.85
10 or more 1.00

The Commission may, in individual cases and due to exceptional circumstances, exempt from the obligation to increase the multiplication factor by the supplementary factor, if the institution has proved that such an increase is unjustified and that the model is fundamentally sound.

In order to enable the Commission to permanently verify the adequacy of the supplementary factor, institutions inform it without delay and, in any event, within five business days, of the overshootings revealed by their ex post control program which, based on the table above, would imply an increase in the supplementary factor.

In the event that numerous overshootings reveal that the model is not sufficiently accurate, the Commission revokes the recognition of the model or imposes appropriate measures so that the model is improved as soon as possible.

§ 5. If the institution's model is recognized for the purpose of calculating the capital requirement for covering specific risk referred to in Article 76.6, § 4), the requirement calculated in accordance with §§ 1 to 3 is increased by either:

i) the “specific risk” part of the value-at-risk measurement (“value-at-risk”);

ii) the value-at-risk measurements of sub-portfolios of debt and equity positions containing specific risk.

Institutions using solution ii) are required to communicate the structure of their sub-portfolios to the Commission in advance and not to modify it without its agreement.

The Commission may exempt from the obligation to operate an increase in accordance with the preceding paragraph, if the institution provides proof that, in accordance with accepted international standards, its model also adequately captures incidental risk (“event risk”) and default risk with regard to its positions in negotiable debt securities and equity securities.

The capital requirement for covering specific risk related to positions in debt securities and equity securities which is not calculated by applying a recognized model, is calculated in accordance with the provisions of Chapters V and VI.] [Thus modified by Article 7 of the Order of the Banking, Financial and Insurance Commission of 4 July 2000 (Approved by the ministerial order of 3 August 2000 - Belgian Monitor of 15 August 2000)]

Chapter IX Particular Calculation Methods

Art. 77
The calculation method referred to in Article 33 must produce positions having the same sensitivity to interest rate variations as the underlying financial flows. This sensitivity must be evaluated with respect to independent fluctuations of a sample of rates on the yield curve and must include at least one sensitivity point for each of the maturity bands mentioned in the table in Article 43.

Art. 78
[The calculation methods mentioned in Article 75 must result in a sufficient capital requirement:
1° to, based on an analysis of exchange rate movements covering all rolling periods of ten business days over the previous three years, exceed probable losses in 99% or more of situations; 2° to, regardless of the amount of the capital requirement referred to in the preceding point, exceed the equivalent of 2% of the net open position calculated in accordance with Article 69. For the application of the method referred to in the preceding paragraph, the Commission determines the formula and method of calculation to be used, as well as the correlation coefficients to be applied. It adapts these periodically according to developments in foreign exchange markets.] [Thus modified by Article 5 of the Order of the Banking, Financial and Insurance Commission of 4 July 2000 (Approved by the ministerial order of 3 August 2000 - Belgian Monitor of 15 August 2000)]

Art. 79
Scenario Analysis

§ 1. [Subject to the prior agreement of the Banking, Financial and Insurance Commission, an institution may use, for its options portfolio and the related hedging positions, the scenario analysis method described in this article, by derogation from the provisions provided in Chapters V, VI, VIII and VIIIbis.]

§ 2. Options positions and the related hedging positions will be treated separately.

However, specific risk requirements as provided for by Chapters V and VI will continue to apply to positions treated in accordance with this article.

§ 3. The institution determines a fixed range of modifications of the portfolio's risk factors and calculates the variations in the value of this portfolio at various stages of the matrix thus formed.
To determine the capital requirement, the institution re-evaluates the portfolio based on simultaneous modifications of the underlying option rate or price and the volatility of this rate or price, as defined below.
This process requires the establishment of a series of two-dimensional price re-evaluation matrices corresponding, for the first dimension, to variations in underlying rates and prices and, for the second dimension, to the variation in the volatility of the aforementioned rates and prices. An evaluation matrix is established for each options portfolio covering the same instrument, as defined below:
a separate matrix is established, with regard to 1° debt securities or interest rates, by currency, for each maturity band defined in Article 43 or, if the institution uses the duration-based method, by zone defined in Article 48; 2° shares and indices, for each market; 3° currencies and gold, for each currency pair or gold; 4° [commodities, for each commodity separately].

§ 4. For each matrix, the options and related hedging positions are evaluated for a specified range above and below the current value of the underlying.
This range is determined with respect to the risk category covering the underlying rate or price (interest rate, equity price, exchange rate).
The proposed ranges will be:

• for interest rates, compatible with the highest of the yield variation assumptions provided in the table in Article 43 (or in Article 48 for institutions using the duration-based method), i.e. 1% for Zone 1 positions, 0.9% for Zone 2 positions, and 0.75% for Zone 3 positions (or 1% for Zone 1 positions, 0.85% for Zone 2 positions, and 0.7% for Zone 3 positions for institutions using the duration-based method);

• for shares, in the case of an index, between minus 8% and plus 8%;

• for gold and currencies, between minus 8% and plus 8%;

• for [commodities], between minus 15% and plus 15%.

For all risk categories, the range must be divided into at least ten equal intervals with respect to the current observation.

§ 5. The second dimension of the matrix involves a variation in the volatility of the underlying rate or price.
The portfolio will in principle be re-evaluated for a volatility variation of minus 25% and plus 25%.
When circumstances justify it, the Banking, Financial and Insurance Commission may prescribe the use of a different volatility variation and/or the calculation of intermediate points on the grid.

§ 6. The capital requirement is represented by the sum of the highest losses in portfolio value calculated in each of the evaluation matrices.
[Thus modified by Article 2 of the Order of the Banking, Financial and Insurance Commission of 8 May 2001 (Approved by the ministerial order of 12 June 2001 - Belgian Monitor of 15 June 2001)]

Chapter X Concentration of Risks

Art. 80
Definition of the notions “aggregate of risks”, “same counterparty” and “large risk”

§ 1. Subject to the provisions contained in §§ 2 to 6 below, as well as to the provisions contained in Article 81, the aggregate of risks for the application of the limitation standards provided in Article 83, includes the balance sheet and off-balance sheet items referred to in Article 16, § 1, in the proportions indicated therein. Article 16, §§ 7 and 8, apply by analogy.

§ 2. By derogation from § 1, the following are included in the aggregate of risks up to 100%:

1° the unused part of confirmed credit lines which, either have an initial duration of one year or less, or can be closed by the institution at any time, without conditions or notice, unless there is an agreement between the institution and the counterparty allowing the institution at any time to limit the use of the credit line to the limitation standards imposed by this regulation;

2° the commitments and replacement costs referred to in Article 16, § 1, 6°, b) to g).

§ 3. By derogation from § 1, commitments resulting from documentary credits referred to in Article 16, § 1, 7°, are included in the aggregate of risks up to 50%.

§ 4. By derogation from the preceding paragraphs, the items referred to in Article 16, § 1, are included in the aggregate of risks up to 20%, when the counterparty is one of the following public authorities or institutions:

1° regional and local public authorities of Member States of the European Community, with the exception of the Belgian Regions and Communities;

2° credit institutions and investment firms having their registered office in a country of geographical Zone A, provided that the aforementioned items do not form part of own funds.

The commitments referred to in Article 16, § 1, 6°, f), are included in the aggregate of risks up to 20% when they concern items which, under the first paragraph, must be included in the aggregate of risks up to 20%.

§ 5. By derogation from the preceding paragraphs, the following are not included in the aggregate of risks:

1° the elements referred to in Article 16, §§ 2 and 6, first paragraph, 1° and 2°; 2° the elements referred to in Article 16, § 1st, whose consideration is one of those referred to in Article 16, § 6, first paragraph, 3°, and which are denominated and financed in the national currency of that consideration; 3° the elements referred to in Article 16, § 1st, whose consideration is one of those referred to in Article 16, § 6, first paragraph, 4°; 4° the elements referred to in Article 16, § 1st, 1° and 3°, when the consideration is a credit institution with which the establishment subject to the provisions of this regulation is associated within the framework of a network governed by legal or statutory provisions under which the establishment mentioned first is responsible for operating the clearing of liquidity of establishments participating in the network; 5° the elements referred to in Article 16, § 1st, when the consideration is one of the companies mentioned below which are subject to consolidated supervision as provided for in Article 95 of the Law of 6 April 1995 on secondary markets, the status of investment firms and their supervision, intermediaries and investment advisors, or are subject to equivalent supervision:
a) a subsidiary of the establishment; b) the parent company of the establishment or a subsidiary of the parent company other than that referred to in point a) [...]; 6° forward foreign exchange transactions referred to in Article 16, § 1st, 6°, g), within the framework of the normal settlement of the transaction during the period of forty-eight hours from the moment the establishment has executed its commitment; 7° claims referred to in Article 16, § 1st, 1°, resulting from purchases or sales of securities and negotiable instruments, within the framework of the normal settlement of the transaction during the period of five business days from the moment the establishment has executed its commitment; 8° the elements referred to in Article 16, § 1st, which are irrevocably and expressly guaranteed in one of the following ways:
a) guaranteed by one of the public authorities or establishments referred to in Article 16, § 6, first paragraph, 4°, including in the form of a pledge right enforceable against securities issued by these public authorities or establishments; b) guaranteed by a pledge right enforceable against deposits received by the establishment or one of its subsidiaries when the latter is a credit institution or an investment firm having its registered office in geographic zone A and is included in the consolidated supervision provided for in Article 95 of the Law of 6 April 1995 on secondary markets, the status of investment firms and their supervision, intermediaries and investment advisors, or guaranteed by a pledge right enforceable against certificates of deposit or any other similar paper issued by one of the aforementioned establishments and deposited with one of them. The commitments referred to in Article 16, § 1st, 6°, f), are not included in the aggregate of risks when they concern elements which, under the first paragraph, must not be included in the aggregate of risks. § 6. By way of derogation from the preceding paragraphs, establishments may also exclude from the aggregate of risks the elements referred to in Article 16, § 1, which are irrevocably and expressly guaranteed in one of the following ways:
1° guaranteed by one of the public authorities or establishments referred to in Article 16, § 3, 1°; 2° guaranteed by a pledge right enforceable against securities and negotiable instruments other than those referred to in § 5, 8°, provided that this right meets the following conditions:
a) for the securities and negotiable instruments pledged, there exists a liquid market as defined in Article 35ter, § 2, of the Royal Decree of 23 September 1992 on the annual accounts of credit institutions, and the securities and negotiable instruments in question do not form part of the own funds of credit institutions or investment firms; b) the issuer of the securities and negotiable instruments pledged is neither the establishment itself, nor its parent company or one of its subsidiaries, nor the consideration of the guaranteed element or a person constituting with this consideration a single consideration; c) the value of the pledge must i) reach at least 150 % of the guaranteed element when the pledge right encumbers fixed-income securities or negotiable instruments issued by one of the public authorities or establishments referred to in Article 16, § 3, 1°; ii) reach at least 200 % of the guaranteed element when the pledge right encumbers fixed-income securities or negotiable instruments issued by issuers other than those referred to in a) above; iii) reach at least 250 % of the guaranteed element when the pledge right encumbers shares and participations or other variable-income securities; the value of the pledge is determined on the basis of the lowest of the following values: the book value or the market value. When an establishment applies the provision of the first paragraph, the guarantor's commitment to the establishment and the risk incurred by the establishment on the issuer of the securities and negotiable instruments pledged are included in the aggregate of risks taken respectively on this guarantor and on this issuer, and not in the aggregate of risks on the consideration of the guaranteed element. § 7. By "a single consideration" is meant either a natural or legal person, or a group of persons who, regardless of their status or legal form, must be considered as a set from the point of view of risk. Must be considered as a set from the point of view of risk:
a) a person and the companies linked to it, until proof to the contrary; b) two or more persons other than those referred to in a) above, who are so mutually dependent that when one of them has financial problems, it can be expected that the other or several others will also encounter financial difficulties. § 8. By "large risk" is meant the aggregate of risks on a single consideration as defined in §§ 1 to 7 and in Article 81, the total amount of which reaches or exceeds 10 % of the establishment's own funds. [Thus modified by Article 2 of the Decree of the Banking, Financial and Insurance Commission of 4 July 2000 (Approved by the ministerial decree of 3 August 2000 - Belgian Monitor of 15 August 2000)] Art. 81 § 1st. By way of derogation from Article 80, § 1st, the risks towards a natural or legal person arising from the trading book are included in the aggregate of risks by adding the following elements, applying mutatis mutandis the provisions of Article 80, §§ 2 and following:
1° the remainder - when positive - of the establishment's net long positions compared to its net short positions concerning all financial instruments issued by the client in question; the net position in each of the different instruments is calculated according to the methods described in Chapters V and VI; 2° in the case of firm commitment to securities or guarantee of good performance relating to a securities transaction, the establishment's risk is its net risk (that is to say, in the case of a firm commitment, which is calculated by deducting firm commitment positions subscribed or taken over by third parties on the basis of a formal agreement) reduced by applying the reduction factors set out in Chapter VII;

3° without prejudice to the provisions of Article 80, § 5, 7°, the risks due to transactions, operations and contracts referred to in Chapter IV, concluded with the client in question, these risks being calculated according to the modalities set out in said chapter, without application of risk weightings. § 2. Then, the risks towards a group of persons forming a single consideration, arising from the trading book, are calculated by adding the risks towards the different persons belonging to the group, according to the calculation method set out in § 1st.

Chapter XI Coefficients and limitation standards
Section I Solvency coefficients
Art. 82
§ 1st. The own funds of an establishment
1° must permanently be at least equal to the total of immobilized assets, excluding assets which, under Article 14, §§ 1st, 1°, b) and 4, are to be deducted for the calculation of own funds; 2° must permanently satisfy the general solvency coefficient calculated on the basis of third-party funds according to the following scale:
first tranche: up to 1 billion BEF 6 % second tranche: > 1 billion ≤ 5 billion BEF 4 % third tranche: > 5 billion ≤ 10 billion BEF 3 % fourth tranche: > 10 billion ≤ 50 billion BEF 2.5 % fifth tranche: more than 50 billion BEF 2 % 3° must permanently be at least equal to the sum of the requirements resulting from

• Chapter III,
• Chapters IV to [VIIIter] and Article 84.
  4° must permanently be at least equal to one quarter of the general expenses of the previous year.
  When the establishment has exercised its activity for less than one year, including the day of the start of its activity, the own funds requirement is equal to one quarter of the amount of general expenses provided for in its activity plan. The Banking, Financial and Insurance Commission may require an adjustment of this plan. For the application of this paragraph, the general expenses taken into consideration consist of:
  1° services and various goods;
  2° remuneration, social charges and pensions; 3° depreciation, impairments and provisions for risks and charges; 4° other operating expenses;

except for amounts which the establishment establishes are directly linked to the volume of activity.
The Banking, Financial and Insurance Commission may adjust this calculation base in the event of a significant change in the establishment's activity compared to the previous year.
§ 2. The requirements resulting from § 1st, 1°, 2° and 4°, [of this article, and of Chapters VIII, VIIIbis and where applicable VIIIter] are calculated on the entire activity of the establishment; the requirements resulting from Chapter IV are calculated on the entire activity of the establishment, subject to the specific provisions provided for in Articles 23 to 25; the requirements resulting from Chapter III are calculated on the entire activity of the establishment, except for the trading book; the requirements resulting from Chapters [V, VI, VII and where applicable VIIIter, and Article 84] are calculated on the establishment's trading book. [Thus modified by Article 2 of the Decree of the Banking, Financial and Insurance Commission of 4 July 2000 (Approved by the ministerial decree of 3 August 2000 - Belgian Monitor of 15 August 2000) and by Article 2 of the Decree of the Banking, Financial and Insurance Commission of 8 May 2001 (Approved by the ministerial decree of 12 June 2001 - Belgian Monitor of 15 June 2001)]
Section II Risk concentration limitation standards
Art. 83
§ 1st. Establishments constituted as a company under Belgian law must 1° limit the aggregate of risks on a single consideration to 25 % of their own funds; 2° limit the total amount of large risks to 800 % of their own funds.
§ 2. The Banking, Financial and Insurance Commission may authorize establishments whose own funds represent an amount less than or equal to 2 billion BEF to exceed the limit provided for in § 1st, 1°, under the following conditions:
1° the consideration is a credit institution or an investment firm having its registered office in geographic zone A;

2° the aggregate of risks on this consideration cannot exceed 50 % of their own funds; 3° the aggregate of risks on this consideration whose initial duration is more than one year cannot exceed 25 % of these own funds, the calculation including, by way of derogation from Article 80, § 4, the elements up to 100 %. § 3. Without prejudice to Article 84, if due to exceptional circumstances an establishment exceeds the limits provided for in the preceding paragraphs, it must eliminate this excess at the latest within six months from its occurrence. It will take the necessary measures to maintain, in the future, within the prescribed limits the concentration of risks on the consideration in question. § 4. Establishments which, under Article 77 of the Law of 6 April 1995 on secondary markets, the status of investment firms and their supervision, intermediaries and investment advisors or an equivalent foreign provision, are required to reinvest specific funds entrusted by their clients may exceed the limits provided for in §§ 1st, 1° and 2, under the following conditions:
1° the excess of limits results solely from the funds subject to the replacement obligation, weighted in accordance with § 2, 3°; 2° the consideration is a credit institution or an investment firm having its registered office in geographic zone A and meeting the conditions set out in § 2; 3° the aggregate of risks on this consideration cannot exceed 625 million BEF. Art. 84 An establishment may exceed the limits provided for by Article 83, provided that the following conditions are met simultaneously:
1° the risk outside the trading book towards a single consideration does not exceed the limits fixed by Article 83, calculated with respect to own funds within the meaning of Article 14, such that the excess results entirely from the trading book; 2° the establishment meets an additional requirement for the excess compared to the limit fixed by Article 83, § 1st, 1°, and §§ 2 and 4; it is calculated by selecting, in the global risk, arising from the trading book, towards the same consideration concerned, the elements which lead to the highest specific risk requirements referred to in Chapters V and VI and/or the requirements referred to in Chapter IV, and whose sum equals the amount of the excess referred to in 1° above;

when the excess has not lasted more than ten days, the additional own funds requirement amounts to 200 % of the requirements referred to in the previous paragraph, on these elements; from the tenth day following the appearance of the excess, the elements of the excess, selected according to the criteria indicated above, are charged to the appropriate line of the table below, in increasing order of specific risk requirements referred to in Chapters V and VI and/or requirements referred to in Chapter IV; the establishment then meets an additional own funds requirement equal to the sum of the specific risk requirements referred to in Chapters V and VI and/or requirements referred to in Chapter IV applicable to these elements, multiplied by the coefficient shown in column 2 of the table:
Excess of limits Coefficients
(based on a percentage of own funds)
(1) (2) up to 40 % 200 % between 40 % and 60 % 300 % between 60 % and 80 % 400 % between 80 % and 100 % 500 % between 100 % and 250 % 600 % more than 250 % 900 % 3° when ten days or less have elapsed since the appearance of the excess, the risk arising from the trading book towards the same consideration in question does not exceed 500 % of the establishment's own funds; 4° any excess arising from the trading book, which has lasted more than ten days does not exceed, in total, 600 % of the establishment's own funds.

Chapter XII Consolidated supervision
Art. 85
Without prejudice to compliance with own funds requirements on a solo basis in accordance with Article 89, establishments which are parent companies are required to comply with the obligations provided for in Chapter XI on the basis of their consolidated situation. The provisions of Article 7 apply mutatis mutandis on a consolidated basis. For the application of the provisions of this chapter, the consolidated situation is understood in the sense of the definition given in Article 95 of the Law of 6 April 1995 on secondary markets, the status of investment firms and their supervision, intermediaries and investment advisors as well as in its implementing decrees, without prejudice to the provisions provided for in Article 86. Art. 86 § 1st. 1° In order to calculate the own funds requirement on a consolidated basis with regard to Chapters V to [VIIIter], the requirements calculated on a solo basis for each of the companies included in the consolidation are added. 2° For the consolidated calculation of the aggregate of risks on a single consideration, the elements referred to in Article 81 of each of the companies included in the consolidation are added without offsetting. 3° For the consolidated application of Article 7, the trading book and the positions of the trading book of each of the companies included in the consolidation are added without offsetting. § 2. However, by way of derogation from § 1st above, offsetting between the positions of the companies included in the consolidation is authorized, subject to the prior agreement of the Banking, Financial and Insurance Commission, in accordance with the rules set out in Chapters V to [VIIIter] and X, provided that

• the management and monitoring of positions are integrated at the group level, and that
• there are no obstacles to the transfer of funds between the companies whose positions are subject to offsetting.
  [Thus modified by Article 2 of the Decree of the Banking, Financial and Insurance Commission of 4 July 2000 (Approved by the ministerial decree of 3 August 2000 - Belgian Monitor of 15 August 2000)]

Art. 87
Specific elements of consolidated own funds
§ 1st. For the calculation of own funds on a consolidated basis, negative consolidation, equity method and conversion differences are part of own funds sensu stricto; on the other hand, if they are positive, these differences are deducted for the calculation of own funds sensu stricto. § 2. For the calculation of own funds on a consolidated basis, third-party interests in the own funds of consolidated subsidiaries are fully incorporated into consolidated own funds sensu stricto. Art. 88 Insurance companies included in the consolidation For the verification of the solvency coefficient provided for in Article 82, § 1st, 1°, the immobilized assets of insurance companies included in the consolidated situation are not taken into consideration when these assets constitute a reinvestment of mathematical reserves. For the verification of the solvency coefficient provided for in Article 82, § 1st, 2°, the mathematical reserves of insurance companies included in the consolidated situation are not taken into consideration for the calculation of third-party funds of the consolidated entity. Art. 89 Modalities of double control Establishments required to comply with own funds obligations on a consolidated basis:
1° must satisfy on a solo basis the solvency coefficients provided for in Article 82 only to the extent of 75 percent; 2° may, on a solo basis, exceed by 25 percent the risk concentration limitation standards provided for in Article 83.

Chapter XIII Special provisions concerning branches of investment firms subject to the law of non-member States of the European Community.
Art. 90
For the application of the general solvency coefficient provided for in Article 82, § 1st, 2°, to branches of establishments subject to the law of States which are not members of the European Community established in Belgium, third-party funds in foreign currencies towards foreign countries are not taken into account. For the application to these branches of the solvency coefficient provided for in
Article 82, § 1st, 3°, foreign currency risks towards foreign countries are not, for the calculation of the requirements resulting from Chapter III, taken into consideration for the calculation of the risk-weighted volume.
The Banking, Financial and Insurance Commission may exempt branches of investment firms having their registered office in a country of geographic zone A, other than the Member States of the European Community, from compliance with this regulation, provided that the following conditions are met:
1° the investment firm is subject in its home country to solvency requirements equivalent to the provisions of European Community law in this matter; 2° the legislation of the home country of the investment firm recognizes in the event of liquidation the principle of equal treatment of creditors of the Belgian branch and other creditors, in particular those of the head office; 3° the managers of the investment firm undertake that, at the first request of the Banking, Financial and Insurance Commission, either the rights and commitments of the Belgian branch are taken over by the head office, or the necessary means are made available to the branch so that it can meet its obligations; the legislation and regulation of the home country of the establishment do not oppose the execution of this undertaking; 4° and the branches of Belgian investment firms active in the country concerned benefit from an equivalent regime in terms of solvency.

Chapter XIV Diverse and transitional provisions
Art. 91
Organization.
Establishments must have adequate systems to verify at all times compliance with the provisions of this regulation.
Art. 92
Reporting obligation.
Establishments communicate to the Banking, Financial and Insurance Commission, at the dates and in the form determined by it, the data necessary to verify compliance with the provisions of this regulation.
Establishments that do not comply with the solvency coefficients or exceed the limitation standards resulting from this regulation, must inform the Banking, Financial and Insurance Commission without delay.
Establishments must immediately report to the Banking, Financial and Insurance Commission all cases in which their counterparties in sell/buy-back operations, or in [securities or commodity lending or borrowing transactions], do not meet their obligations. Establishments benefiting from the treatment provided for in Article 7 must immediately inform the Banking, Financial and Insurance Commission when they fall under the provisions of Article 9. [Thus modified by Article 2 of the Decree of the Banking, Financial and Insurance Commission of 4 July 2000 (Approved by the ministerial decree of 3 August 2000 - Belgian Monitor of 15 August 2000)] Art. 93 This regulation enters into force on 1 January 1996.