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Part III Investment Banking, 13 Securities Underwriting

From: International Regulation of Banking: Capital and Risk Requirements (2nd Edition)

Simon Gleeson

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From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2015. All Rights Reserved.date: 25 September 2020

13.01 Underwriting poses special problems for investment firm capital adequacy. An underwriting position is in principle a trading position—it is bought in order to be sold—and is generally properly dealt with in the trading book. However, unissued or unallocated securities have a number of anomalous features—for example, they do not give rise to specific market risk, since their price does not change—and the structure of underwriting does not fit easily within either the option or the ‘synthetic short’ analysis which is used for ordinary trading activities....
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