# The Friendly Societies (Insurance Business) (Amendment) Regulations 1996, Regulation 13: Derivative contracts


For regulation 30 of the 1994 Regulations (derivative contracts) substitute—
“Derivative contracts
30 (1) The value of rights (other than rights to recover assets transferred by way of initial margin) under a derivative contract to which this regulation applies shall be—
(a) in the case of a listed derivative contract, the market value; and
(b) in the case of an unlisted derivative contract, the amount which would reasonably be paid by way of consideration for closing out that contract,
in either case taking into account the market value of any assets which, at the relevant date, have been transferred by way of variation margin.
(2) This regulation applies to an approved derivative contract which is covered and—
(a) which is held in connection with a contract or asset of the type described in paragraph (3) below for the purposes of reduction of investment risks or efficient portfolio management; or
(b) which has effect as if so held for such purposes.
(3) The contract or asset described in this paragraph shall be either—
(a) an approved derivative contract or a contract or asset having the effect of an approved derivative contract which, when taken together with the approved derivative contract the rights under which are being valued in accordance with this regulation, would have the effect that the society either holds an asset for the valuation of which provision is made in this Part of these Regulations or holds an approved derivative contract in connection with such an asset; or
(b) an asset for the valuation of which provision is made in this Part of these Regulations, being neither a derivative contract nor a contract or asset having the effect of a derivative contract.
(4) For the purposes of this regulation an approved derivative contract is covered if it does not require a significant provision to be made in respect of it pursuant to regulation 36 below.
(5) For the purposes of determining in accordance with paragraph (4) above whether a required provision is significant, regard shall be had to the obligations of the society under the contract and the volatility of the assets identified by the society as being suitable to cover such obligations, and the required provision in respect of any one derivative contract shall be deemed to be significant if—
(a) the aggregate provision required in respect of all contracts having a similar effect is significant; or
(b) the aggregate provision required in respect of all contracts with which it is connected is significant.
(6) In this regulation “approved derivative contract” means a derivative contract entered into by a society to which section 37(2) or (3) of the 1992 Act applies and which—
(a) either is listed or has been entered into with an approved counterparty; and
(b) the society reasonably believes may be readily closed out; and
(c) is either a contract for differences to which paragraph (7) below applies or a futures contract or an option to either of which paragraph (8) below applies.
(7) This paragraph applies to—
(a) a contract for differences under which the amount payable by either party is calculated solely by reference to fluctuations in any of the following—
(i) the value of an asset for the valuation of which provision is made in this Part of these Regulations; or
(ii) the amount of income from such an asset over a defined period; or
(iii) an index of such assets, being an index in respect of which a derivative contract is listed; or
(iv) a national index of retail prices published by or under the authority of a government of a State belonging to Zone A as defined in Council Directive 89/647/EEC of 18th December 1989 on a solvency ratio for credit institutions;
or an arithmetic average thereof, and
(b) a contract under which the amount payable by either party is calculated by reference to the difference between the market value and the amortised value of any asset for the valuation of which provision is made in this Part of these Regulations.
(8) This paragraph applies to a futures contract or an option which in either case provides for the acquisition or disposal of assets for the valuation of all of which provision is made in this Part of these Regulations at a price which is determined by one or more of the following methods—
(a) for each date on which the contract may be completed or the option exercised, the price is a fixed amount under the terms of the contract or option;
(b) it is determined by reference to the market value or the amortised value of an asset for the valuation of which provision is made in this Part of these Regulations or the amount of income over a defined period from such an asset;
(c) it is determined by reference to an index of the kind mentioned in paragraph (7)(a)(iii) or (iv) above.”.

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Source: https://www.legislation.gov.uk/uksi/1996/3008/regulation/13 (the official version)
Page: https://openlegislation.uk/friendly-societies-insurance-business-amendment-regulations-1996/regulation-13
Contains public sector information licensed under the Open Government Licence v3.0. Source: legislation.gov.uk, The National Archives.