6. Positions in equity and equity derivatives

Competent authorities may allow the inclusion in the IRC of listed equity positions and derivatives positions based on listed equity subject to the following conditions:

• i. the related positions in equity and credit instruments are jointly managed by an identified trading unit (e.g. arbitrage between convertible bonds and equity);
• ii. procedures for the measurement and management of joint credit and equity risk are in place for the relevant trading unit; and
• iii. all equity positions of the relevant trading unit are included, in order to avoid cherry-picking.

If a listed equity or a derivative instrument based on listed equity is included in the computation of the IRC measure, the default of any of these instruments is deemed to occur if the related debt defaults.

Notwithstanding the inclusion in the IRC of positions in listed equity or in derivative instruments based on listed equity, a specific risk capital charge for these positions – capturing event risk in the case of the use of an internal model – must still be calculated.