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[X1PART TWO U.K. [F1OWN FUNDS AND ELIGIBLE LIABILITIES]

TITLE I U.K. ELEMENTS OF OWN FUNDS

CHAPTER 2 U.K. Common Equity Tier 1 capital

Section 3 U.K. Deductions from Common Equity Tier 1 items, exemptions and alternatives

Sub-Section 1 U.K. Deductions from Common Equity Tier 1 items
Article 45 U.K. Deduction of holdings of Common Equity Tier 1 instruments of financial sector entities

Institutions shall make the deductions required by points (h) and (i) of Article 36(1) in accordance with the following provisions:

(a)

they may calculate direct, indirect and synthetic holdings of Common Equity Tier 1 instruments of the financial sector entities on the basis of the net long position in the same underlying exposure provided that both the following conditions are met:

(i)

[F1the maturity date of the short position is either the same as, or later than the maturity date of the long position or the residual maturity of the short position is at least one year;]

(ii)

either both the long position and the short position are held in the trading book or both are held in the non-trading book;

(b)

they shall determine the amount to be deducted for direct, indirect and synthetic holdings of index securities by calculating the underlying exposure to the capital instruments of the financial sector entities in those indices.]

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