Regulation 7 Prescribed circumstances for the purposes of sub-paragraph (ii)
Paragraph (2) of this regulation prescribes, for the purposes of sub-paragraph (ii), the circumstances where a manufactured dividend shall be excepted from paragraph (b) by virtue of sub-paragraph (ii).
The circumstances prescribed by this paragraph are where—
the manufactured dividend is paid in respect of quoted United Kingdom equities of a particular kind (in this regulation referred to as “equities”);
the manufactured dividend is paid by a member who, immediately before the time of entering into the contract or other arrangements for the transfer of the equities under which the manufactured dividend is paid (that time being referred to in this regulation as “the contract time”), is required to pay a manufactured dividend to the other party in respect of equities—
purchased as an options market maker by way of a hedge against the likelihood of his having to deliver such equities on a future exercise of options which he has bought or sold, or
sold as an options market maker by way of a hedge against the likelihood of his having to receive such equities on a future exercise of options which he has bought or sold, or
purchased as an options principal trader by way of a hedge against the likelihood of his having to deliver such equities on a future exercise of options which he has bought or sold, or
sold as an options principal trader by way of a hedge against the likelihood of his having to receive such equities on a future exercise of options which he has bought or sold, or
purchased or sold in order to meet his obligation to deliver or receive equities resulting from the earlier exercise of options by or against him;
the number of equities—
purchased by the member where paragraph (i) of sub-paragraph (b) applies, does not result in the total number of equities held by the member at the contract time for the purpose specified in that paragraph exceeding the Maxlong limit applicable on that date in respect of equities, or
sold by the member where paragraph (ii) of sub-paragraph (b) applies, does not result in the total number of equities sold at the contract time by the member for the purpose specified in that paragraph exceeding the Maxshort limit applicable on that date in respect of equities, or
purchased by the member where paragraph (iii) of sub-paragraph (b)applies, does not result in the total number of equities held by the memberat the contract time for the purpose specified in that paragraph exceedingthe Deltapluslong limit applicable on that date in respect of equities, or the Maxlong limit applicable on that date in respect of equities to which he would be subject if he were an options market maker, whichever is the less, or
sold by the member where paragraph (iv) of sub-paragraph (b) applies, does not result in the total number of equities sold by the member at the contract time for the purpose specified in that paragraph exceeding the Deltaplusshort limit applicable on that date in respect of equities, or the Maxshort limit applicable on that date in respect of equities to which he would be subject if he were an options market maker, whichever is the less, or
purchased by the member in order to meet his obligation to deliver within paragraph (v) of sub-paragraph (b), does not exceed the amount, if any, by which the number of equities which he is so obliged to deliver exceeds the number of equities of that kind calculated by reference to the formula—
where—
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A is the number of equities which he held at the time of exercise of those options, other than equities which he was obliged to deliver at that time as the result of an earlier agreement to sell equities which at the time of theagreement he did not own and had not agreed to purchase, which he had agreed to sell in order to hedge the likelihood of his having to receive such equities on a future exercise of options which he had bought or sold, and which did not exceed the appropriate limit at the time of the agreement,
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B is the number of such equities which he was entitled to receive at that time as a result of the exercise of other options by or against him, and
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C is the number of such equities which he held at that time by way of a hedge against the likelihood of his having to deliver such equities on a future exercise of other options which he had bought or sold;
if, and to the extent that, in the circumstances referred to in paragraphs (i) to (iv) of sub-paragraph (b) the number of equities so held or sold immediately before the contract time but before the payment of the manufactured dividend exceeds, at any time subsequent to the contract time, and for a period of six consecutive days, the appropriate limit as calculated from day to day in respect of equities, he has made the sales or purchases (as the case may require) necessary to eliminate that excess prior to the expiry of the day following the end of that period; and
if, and to the extent that, in the circumstances referred to in paragraph (v) of sub-paragraph (b), the number of equities so purchased or sold immediately before the contract time but before the payment of the manufactured dividend exceeds, for a period of six consecutive days, the sum of—
the appropriate limit, as calculated from day to day, in respect of equities which are required as a hedge against the likelihood of his having to deliver or receive such equities on a future exercise of other options which he had bought or sold, and
the number of equities which are required to meet his obligation to deliver or receive equities resulting from the exercise of other options by or against him,
he has made the sales or purchases (as the case may require) necessary to eliminate that excess prior to the expiry of the day following the end of that period.
For the purposes of sub-paragraphs (c)(v), (d) and (e) of paragraph (2), “the appropriate limit” means—
as regards a member who is an options market maker in relation to those equities at the time of the agreement referred to in the definition of A in sub-paragraph (c)(v) of paragraph (2) or, as the case may be, during the period specified in sub-paragraph (d) or (e) of that paragraph, the Maxlong limit or the Maxshort limit (as the case may require), and
as regards a member who is an options principal trader in relation to those equities at the time or, as the case may be, during the period referred to in sub-paragraph (a) of this paragraph, the Deltapluslong limit or the Maxlong limit, whichever is the less, or the Deltaplusshort limit or the Maxshort limit, whichever is the less (as the case may require).