The Income Tax (Dividend Manufacturing) Regulations 1992

Meaning of the Deltapluslong limit and the Deltaplusshort limit

9.—(1) For the purposes of these Regulations “the Deltapluslong limit” means, in relation to options entered into by a member who is an options principal trader to buy or sell quoted United Kingdom equities of a particular kind, the maximum number of such equities which is found by—

(a) subject to sub-paragraph (c), making the following calculation in respect of each relevant expiry month and each designated account—

J - K

where J is the number of such equities which he is likely to deliver on the exercise of options expiring within that month, calculated by multiplying the most recently published Delta number by the number of equities in respect of each option which would be transferred if that option were exercised, and K is the number of equities which, adopting the same method of calculation, he is likely to receive, on the exercise of such options;

b

increasing the amount calculated in sub-paragraph (a) by 20 per cent. of the sum of the number of such equities which he would be obliged to deliver and the number he would be obliged to receive, if those options were all exercised;

c

where at the time of calculation such options would expire, unless previously exercised, within a period of four weeks, making the calculation specified in regulation 8(1)(a) in respect of those options for the relevant expiry month instead of the calculations referred to in sub-paragraphs (a) and (b) of this paragraph;

d

where the amount calculated by reference to sub-paragraphs (a) and (b) or the amount calculated by reference to sub-paragraph (c) is a negative amount, treating that amount as zero; and

e

aggregating the amounts so calculated in respect of all relevant expiry months and designated accounts.

(2) For the purposes of these Regulations “the Deltaplusshort limit” means, in relation to options entered into by a member who is an options principal trader to buy or sell quoted United Kingdom equities of a particular kind, the maximum number of such equities which is found by—

(a) subject to sub-paragraph (c), making the following calculation in respect of each relevant expiry month and each designated account—

L - M

where L is the number of such equities which he is likely to receive on the exercise of options expiring within that month, calculated by multiplying the most recently published Delta number by the number of equities in respect of each option whichwould be transferred if that option were exercised, and M is the number of equities which, adopting the same method of calculation, he is likely to deliver, on the exercise of such options;

b

increasing the amount calculated in sub-paragraph (a) by 20 per cent. of the sum of the number of such equities which he would be obliged to deliver and the number he would be obliged to receive, if those options were all exercised;

c

where at the time of calculation such options would expire, unless previously exercised, within a period of four weeks, making the calculation specified in regulation 8(2)(a) in respect of those options for the relevant expiry month instead of the calculations referred to in sub-paragraphs (a) and (b) of this paragraph; and

d

proceeding as specified in sub-paragraphs (d) and (e) of paragraph (1).

(3) For the purposes of paragraphs (1) and (2) “the Delta number” means the number which—

(a) is calculated and published from time to time under the authority of the Board of directors in relation to each type of option and the price at which the option may be exercised, and

(b) reflects the degree of probability of exercise of that option as determined by the Board of directors in the light of the current market price of the shares or stock to which the option relates.