COLL 7.4.12 Requirement to Cover Sales—QFC Retail Schemes

(1) An agreement must not be made by or on behalf of a QFC retail scheme to dispose of property or rights unless—
(a) the obligation to make the disposal and any other similar obligation could immediately be honoured by the scheme by delivery of property or the assignment of rights; and
(b) the property or rights mentioned in paragraph (a) are owned by the scheme at the time the agreement is made.
(2) Subrule (1) does not apply to a deposit.

Note Deposit is defined in the glossary.
(3) Subrule (1) does not apply if—
(a) the risks of the underlying financial instrument of a derivative can be appropriately represented by another financial instrument and the underlying financial instrument is liquid; or
(b) the operator or independent entity has the right to settle a derivative in cash, and cover exists within the scheme property that falls within 1 or more of the following asset classes:
(i) cash;
(ii) liquid debt instruments (for example, government bonds of first credit rating) with appropriate safeguards (in particular, haircuts);
(iii) other liquid assets having regard to their correlation with the underlying of the financial derivative instrument, subject to appropriate safeguards (for example, haircuts if relevant).
(4) In the asset classes mentioned in subrule (3), an asset may be considered as liquid if the financial instrument can be converted into cash in no longer than 7 business days at a price closely corresponding to the current valuation of the instrument on its own market.
Derived from QFCRA RM/2010-05 (as from 1st January 2011)