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0:09Thank you Isaiah. We continue our
0:12discussions um with two topics on
0:14financial instruments. We start off with
0:16FIC and I hand over to Angie.
0:21>> Good afternoon everyone. The purpose of
0:23this session is to continue the ISB's
0:26redeliberations on the proposals in the
0:28exposure draft related to applying the
0:30fixed for fixed condition when
0:32classifying derivatives on own equity.
0:34We have three papers. Agenda papers 5A
0:37and 5B contain the staff's
0:39recommendations for refinements to the
0:41proposed requirements having considered
0:43the detailed feedback on the ED and from
0:45ISB members at the December 2025
0:48meeting. At this meeting, we'll ask the
0:50ISB whether it agrees with the staff
0:52recommendations for the proposed
0:54amendments. Paper 5C provides an update
0:57on the FIC project plan. So, I'll tee up
1:00each paper separately and then we can
1:02stop for questions and comments after
1:04each tea up. So, we start with agenda
1:07paper 5A. This paper focuses on the fix
1:10for fixed requirements more broadly. So
1:12before considering any principles for
1:14permissible adjustments and it includes
1:17a reminder of the objective of and the
1:19background to the proposals. In
1:21paragraph 17 to 31 of the paper, the
1:24staff analyze the concept of a fixed
1:26exchange ratio highlighting the
1:29differences between fixed in absolute
1:31terms versus fixed in relative terms.
1:33And based on our analysis, we are of the
1:35view that fixed for fix and absolute
1:37terms is what the ISB intended with the
1:39proposed amendments. So we therefore
1:42recommend removing references to a fixed
1:44exchange ratio and the amount of
1:46consideration for each of our own equity
1:48instruments when we clarify the fixed
1:50forix condition. So instead this current
1:53notion of a fixed amount of
1:55consideration for a fixed number of
1:57shares will remain. Then in paragraphs
2:0032 to35 of the paper, we also discuss
2:02the effects of foreign currency and we
2:05recommend the ISP finalized the
2:06proposals related to the effect of
2:08foreign currency that were in the ED and
2:11also clarify that when you have a group
2:13entity issuing a derivative on another
2:15group entity shares that the
2:16consideration amount could be
2:18denominated either in the functional
2:20currency of the entity that issues the
2:21derivative or the entity whose shares
2:24are being delivered. So I'll pause here
2:27and hand over to Rihanna quickly.
2:33[clears throat] So I thought maybe just
2:35before we start the discussion I just
2:36want to make sure we are all sort of on
2:39the same page about what the paper is is
2:41trying to do and and because I think
2:44that might help to clarify some um some
2:48things where where people might be
2:50unsure. So I think this paper has has
2:52two main questions and it is just
2:55looking at the front the principal part
2:56of fix for fix where it talks about the
2:58fixed amount or a fixed number of shares
3:01not talking about the adjustments just
3:03that principle and the question really
3:04is so when we say fixed how how fixed
3:08does it have to be and what needs to be
3:10fixed that's the second question or
3:11maybe the first question first is what
3:13needs to be fixed and then the second
3:14question how fix is fixed in terms of
3:18the first question what we were trying
3:19to say is The ED focused just on one
3:22element saying the exchange ratio has to
3:25be fixed.
3:27But you could have a situation where you
3:30could have a fixed exchange ratio but
3:32two very variable amounts that you know
3:36varies quite a lot but they vary in a
3:39way that always gives you an a fixed
3:40exchange ratio. And that doesn't feel
3:44consistent with what we in the past
3:47thought about fixed for fix being
3:48something that is more fixed than you
3:50know completely variable amounts. And so
3:52that's part of why the recommendation is
3:54let's not focus just on the exchange
3:56ratio being fixed. But there are three
3:59things in the equation. There's the
4:02amount, there's the number of shares and
4:03there's the exchange ratio. Now two of
4:06those things if two of them are fixed
4:09then the third one would be fixed as
4:11well. So as long as two of those things
4:13are fixed could be the amount and the
4:15exchange ratio or the amount and the
4:17number of shares but that would mean the
4:19other element is also fixed. So that's
4:20sort of what we on the first question
4:23about what needs to be fixed. We're not
4:25saying the exchange ratio doesn't
4:27matter.
4:28>> It does because we need two things that
4:31that should be fixed. And then the
4:33second question is how fixed is fixed.
4:36And I think you know in the ED we were
4:39not talking so much about this principle
4:41bit because we were focusing more on the
4:43adjustments later. But I think just
4:46coming back to this principle bit about
4:49how fixed is fixed. I think where we are
4:52is sort of saying well fix is pretty
4:54fixed in [laughter] the
4:57in the sense that it is a known amount
5:00or a known number of shares and and we
5:04can talk about you know how when is it
5:07known and what if you've got different
5:10um amounts and numbers specified at
5:12different times but it is known in the
5:16sense that I know what that amount is at
5:18a point in time. So that's sort of what
5:20the paper is just trying to in terms of
5:22the principle is answering those two
5:24questions about
5:26what needs to be fixed and how fixed
5:28should it be fixed
5:31and with that I think we can
5:32[clears throat]
5:33maybe open the floor for questions
5:35>> we are now allowed to discuss you yes
5:38okay
5:38>> that's good thank you very much for the
5:40tea up and and for the additional um
5:42clarification I think that was useful
5:45okay floor who would like us get us
5:48started
5:54I'm happy to start. Um, and Rihanna,
5:57thank you for that clarification. I
5:59didn't get that from the paper and that
6:01is I think is very important and and um
6:06what's it's critical [snorts] to what
6:08I've been thinking about because I did
6:10not understand
6:12uh the sentence and paragraph sentence
6:15um that thought that you this ISB had
6:20viewed fixed for fixed in absolute terms
6:24always that was not my mind I've always
6:27been a fixed ratio view and I thought
6:33you know the way it was in the exposure
6:35draft um I fully supported I thought you
6:39know par U BC 35 and 36 supported it we
6:44had examples like example 13 that
6:46supported it a fixed ratio I thought the
6:49feedback from constituents
6:51generally supported a fixed ratio they
6:54just asked well but there's cl we need
6:56some clarifications
6:58around that. So I I still
7:01support that view and from what I'm
7:03hearing from your clarifications, it's
7:05not we're not deviating necessarily from
7:08that view, but we need to further
7:09explain how that view um works. The way
7:13I think about it is in every equity
7:17derivative, well, every derivative you
7:19have two legs. And in this case, equity
7:21derivatives, you have a cash leg and a
7:24share leg. Um, if they're both
7:28absolutely fixed, we have no problem.
7:30That's equity. We have a situation where
7:33one leg can vary um, but the others is
7:36always fixed. We'll talk about that in
7:39paper 5B. There's only certain cases
7:42where that can be. The other is where
7:47the both legs can vary, but they must
7:49vary in the same way such that there's
7:51always a fixed ratio. And in my mind,
7:55what we then need to discuss and what
7:56was being asked for clarification is
7:59well because then you have what varies
8:02is the notional.
8:04It's how many
8:07options can you do you get? Um in
8:10example 13 we had uh the holder can
8:14choose to exercise for 50 shares for 55
8:20or 100 shares for £110
8:23fixed ratio but gets a choice and said
8:26that would meet equity and I agree I
8:29don't see in that case where that
8:31notional varies between 50 and 100 uh
8:36shares the entity isn't taking on any
8:39risk. risk.
8:42It's just on the number of shares. It's
8:43all equity risk. So, it seems to me
8:46that's the case. Um, in the what's been
8:49brought up is the
8:51convertible bond with acred interest.
8:55And in that case, again, the notional
8:57kind of will vary based on how much
9:01acred interest there is based on a fixed
9:04interest rate. Again, I don't see the
9:06entity taking on any other
9:10exposure other than equity risk.
9:14So, I think all those uh should be
9:17covered. Um we can then get into so for
9:22me the issue is well
9:26how can
9:27[snorts] under what circumstances can
9:29that notional
9:31change? What can change that notional?
9:34Uh we've talked about and we're going to
9:36talk about in 5B time. I think time
9:38would be acceptable.
9:4013 [clears throat]
9:41the holder or the issuers's choice uh
9:44can change that. I think if you put a
9:48share price provision in there
9:51um that's still equity. So for example
9:56uh you can exercise for so many options
9:58but there's a cap on the number of
9:59options based on if the share price goes
10:02it hits a certain threshold then it caps
10:06me again that's just equity exposure. If
10:09we're putting on variables like well you
10:12get to uh exercise so many options based
10:16on the price of corn.
10:19Now we're bringing it in. So I in my
10:22mind I'd like to come up with a model
10:25that says fixed ratio is okay
10:29provided the notional varies based on
10:33things that we agree are acceptable such
10:36as time a fixed interest rate
10:39um knock in knockout based on share
10:42price time
10:44um things that I think are more
10:46contentious we would need to talk about
10:49are what if the uh notional
10:52changes based on a benchmark interest
10:54rate or inflation.
10:58I not pushing it, but I I can see an
11:00argument both sides. And then there's
11:02things that are like gold, coin, corn,
11:05commodities,
11:07other financial variables. I just I'm
11:10not even going to suggest that because I
11:12think that kind of goes too far. So
11:16for me, I'm not ready to accept the
11:18staff recommendation.
11:22I think I I want to see more discussion
11:24about
11:26um developing the model as I've just
11:28kind of laid out.
11:34So would it be fair to characterize your
11:37view Bob as [clears throat]
11:43the staff is is trying to do is
11:45clarifying what fixed for fixed really
11:47means without finding an underlying
11:51objective or why there is fixed for fix.
11:54You are trying to bring that underlying
11:56rationale and saying as fix for fix is
11:59really dealing with what instruments
12:03lead to there only being equity risk and
12:06if there is only equity risk is that you
12:09qualify you bring in any other risk
12:13either at best it's that's debate or
12:15it's clearly out is that I
12:20>> I
12:22the way you've characterized myself I
12:25don't disagree with the way you
12:26characterize the staff's proposal I do
12:29because when we get into 5B right where
12:33we've talked about okay what's
12:35acceptable I know we're changing the
12:36name but pres acceptable preservation
12:39adjustments
12:40>> right we've said the step recommendation
12:43there is well there's certain risks that
12:45you bring in such as time value which
12:48are not consistent with this equity
12:50notion at least that's the way I'm
12:51reading and Steph may disagree with me.
12:55>> Um, and I'm not necessarily pushing so
12:59much as the
13:03objective is no only have equity risks.
13:06I'm saying the objective is okay that u
13:11you always have this fixed ratio but
13:14what are the acceptable things that it
13:16can that notional can vary on.
13:20Does that make make sense?
13:24>> Well, I think it does and and and the
13:27way how you characterized it, I think um
13:31is easy to agree with. Firstly, if you
13:34say have your fixed amount and fixed
13:36shares, that's easy. If you do have a
13:39variation where somebody has to choice
13:41between two fixed states, also same
13:44thing because it either leads to this
13:47the fixed ratio, right?
13:49So the question is could there be a
13:51situation where actually you have
13:52fluctuations on on on both ends which
13:56probably the team wouldn't permit
13:57because they say two things have to be
13:59fixed right they could could there be a
14:03situation where mathematically you can
14:05demonstrate that you have variation in
14:07both the amount and the shares but still
14:11the ratio is fixed. So, um, two things.
14:15One, I kind of like the way that Rihanna
14:18described it is there's these three
14:20components and two have to be, uh,
14:23fixed, um, and one of them can be the
14:26fixed ratio. So that if I have a
14:27situation where, uh, cash leg varies by
14:31this factor, um, share leg varies by
14:34this factor, they just happen to
14:37coincide or they'll be highly
14:38correlated. No, that's not good enough.
14:41It's got to be a fixed ratio.
14:45>> Um, and the other reason for this is
14:50if we
14:52I I think if we don't go down that path
14:53with the the the the two pieces fixed,
14:56then we're going to have to start
14:57dealing with units of account because
14:59otherwise I'm going to be able to
15:02structure around this. If you think
15:03about that example 13, right, where we
15:06said, okay, that's equity. If we swear
15:07to say for instance that no that cannot
15:11be equity because it's while it's a
15:12fixed ratio it's not absolutely fixed
15:14and I may be using absolute they're
15:16different than you it was absolute but
15:17it's not absolutely fixed well I can
15:19easily structure around that and put it
15:21into two contracts and now we've got to
15:24deal with unit of account
15:27>> okay thank you lost track a little bit
15:31so if I can just go anticlockwise if
15:33that's okay so Bruce Nick
15:36Huggy,
15:37>> thanks very much. So, so
15:40I I I kind of came into this thinking I
15:42wasn't
15:44I say happy, but I wasn't probably
15:45unhappy with with what the staff was
15:47recommending. But I must say Bob Bob's
15:48made a compelling case on some of these
15:49issues and and I think what's what's
15:51kind of led me down this path is
15:53thinking, you know, we we we got a tough
15:55job here. I mean, fixing this problem is
15:58something we've been trying to do,
15:59previous boards have been trying to do.
16:00You know, we we're not going to find a
16:02quick solution to this.
16:04The challenge in my mind is that we've
16:06got two choices. We can either turn
16:07around and take a very hard line to say
16:09fixed or fixed is exactly what it says.
16:12If everything is not fixed up front on
16:15day one in the contract and we can see
16:16it, you're in liability now. I'll tell
16:19you it's easy to apply. There won't be
16:21any judgment, but I think we're going to
16:22do the financial market some damage
16:24because I think that would that would
16:25shift huge amounts of of funding in the
16:28market. I don't think we want to get
16:29there. On the other hand, we can't get
16:30to a stage where, as you were saying,
16:32where, you know, everything's variable,
16:33but providing there's an equity
16:35instrument involved, it's equity because
16:36I think that's not faithfully
16:37representative at all. Which means once
16:39again, we run it down to one of these
16:40wonderful decisions of where do we all
16:42draw the line,
16:43>> right?
16:43>> And and I better if we asked everybody
16:45to write down a piece of paper where
16:46they draw the line, we're probably going
16:47to get 13 different things around the
16:49table. Um, and and that's where the
16:50challenge comes in. And and and I think
16:52that's what we've got to try and look
16:54at. I like the idea of having a bit more
16:57flexibility than saying we we we're not
16:59going to accept anything in the ratios
17:01for a lot of the reasons that that that
17:03Bob has articulated. So I'm not going to
17:04repeat those. But I also think we've got
17:06to have lines that say look if if we're
17:07at a point where people are linking
17:09these two and I know you spoke about the
17:10extreme ones. You're right. So the
17:11external commodities I don't think it's
17:13going to dispute. But I get a little bit
17:15concerned about benchmark interest rates
17:16because that to me starts feeling a
17:18little bit a little bit debty if you
17:20know what I'm saying. A little bit this
17:21doesn't start feeling like an equity
17:22thing. But I tell you what I quite like
17:24and Russ was when your question I
17:26actually quite like that idea of saying
17:27look
17:29is there a principle we can draw out of
17:30this is saying that your exposure needs
17:32to be an equity exposure too. Now, I'm
17:35not pretending I've got the exact words
17:36smmithing, but but that that's kind of
17:38what you were saying is forgetting I I
17:40agree and and I always worry about when
17:42we start getting into the nuances of
17:43each instrument because having been the
17:45world where we structure these
17:46instruments, whatever we say somebody is
17:48going to structure wrong. That that's
17:50the reality. Unless we go to the
17:51extreme, we say fix for fixed with
17:53absolutely zero variability, people are
17:55going to be able to get and and and we
17:57we we can try and look at very options,
17:59but that's a risk we're going to face.
18:02But I like the idea of having some sort
18:03of principle that says look guys if at
18:05the end of the day you sit and look at
18:06this and there are various inputs that
18:08go into it but at the end of the day the
18:10company's exposure is only an equity
18:12exposure. In other words they're not
18:13exposed to something outside of that
18:16strikes me as an equity instrument. What
18:18other guardrails we need to put in place
18:20I accept we we may to finesse a bit but
18:22I think that kind of gives a principle
18:23to to draw everything on.
18:26Is it going to cover off 100% of the
18:28instruments? No. because the moment we
18:30come up with a principle, we're probably
18:32going to have five people around this
18:33table come up with instruments where it
18:34doesn't work. And and my only fear with
18:36this and and I maybe plead to the board
18:38members,
18:40if we're going to try and solve every
18:41instrument, um nobody will be sitting
18:44around this table when they finalize
18:45this project because it'll it it'll be
18:48another 20 years until we get it done.
18:50So, I do think we've got to be very
18:51careful on this one. We're trying to
18:53find the perfect principle, the perfect
18:54answer that will resolve every single
18:57instrument's issue. I think that's going
18:59to be difficult. I think let's try to
19:00find a principle that works in most
19:02cases that gets the right answer and and
19:04I quite like this idea of starting to
19:06explore that would be my view is
19:07exploring this concept around what is
19:09the actual exposure a company's got with
19:12the instrument because I think if we've
19:13got something that starts looking around
19:15that then a lot of these examples you
19:17gave I think start feeding into the
19:18answer saying well hang on if my
19:20exposure is to the gold price well
19:23that's it it's it it works under that
19:25principle my exposure is not linked to
19:27equity if it is fixed like the example
19:29example in 13 where everything is really
19:31down. I've got no exposure other than
19:33equity exposure. Well, then it makes
19:34sense to me to to do that. And then
19:36you're right, if I structure it as unit
19:37account, two or one different contracts
19:40for $1 for one share, it doesn't
19:42actually matter because we get to a
19:44stage where the principles being
19:45applied. So I I'd be interesting
19:47exploring a bit. No, no, sorry. It it
19:49does take us away a bit from where we've
19:50been here, but
19:52I I quite like that concept of what you
19:54were saying around is the risk and
19:57equity risk.
19:59What what what do you think is equity
20:01risk?
20:02>> And I knew you were going to ask me
20:03that. So So I agree with you and and I
20:05think I I that's what I'm saying. I
20:06don't have the exact wording. So I'm not
20:08I'm not and I said if if I had the exact
20:10wording and the perfect answer, we'd
20:11resolve this project in one day.
20:13>> Even if it's not the words, just when
20:15you think about what what is equity
20:17risk, what what what are the kind of
20:19things that you think?
20:21>> So it's you're right. I can probably
20:22give you 100 examples what it's not. I'm
20:25pretending what it is is a challenge.
20:26Maybe that's the way we need to think
20:27about building it from the other way
20:28around of saying well what is you know
20:30what are the things that don't put you
20:31in equity risk but the things like the
20:33variability where you link to an outside
20:35thing to me certain benchmark interest
20:37rates that just don't we could always
20:38maybe it is a negative
20:40>> variability for results
20:41>> yeah whatever it may be maybe there is
20:44it's almost a negative these are the
20:46things that we don't believe result just
20:48in equity because unfortunately I do
20:49think it's easier to define what's not
20:52>> equity risk than what is um it Yeah, as
20:56I haven't 100% thought through, but as
20:58we're talking through it, I just think
20:59somewhere along the line we got to try
21:00and do something maybe gets us a little
21:02bit more where people can analogize a
21:03lot clearer what we're trying to say.
21:07>> Will you add a repeatable presumption?
21:12>> No.
21:13>> Thank you. Um,
21:16so there are challenges here and we
21:20talked about what the financial
21:21statements are trying to convey this
21:22morning. Clearly that is information to
21:24investors and with clarity.
21:28Um and against that we have some market
21:30dynamics at play.
21:33You know when I think of of of equity
21:35risk I think of participation and
21:37residual economic performance of the
21:39entity. That's what I think of and and
21:42I'm not sure that's necessarily always
21:44the same as
21:46equity exposure in terms of you have an
21:49exposure to equity. And I guess what
21:52worries me is even just taking the fixed
21:55exchange ratio
21:57difference in those notionals same ratio
22:00has a very different impact on the
22:02existing equity holders in terms of how
22:05big that notional is and I think you
22:08know that then starts to you know and
22:10some of those things we've talked about
22:12in terms of the preservation adjustments
22:14in terms of that concept not harming the
22:17existing holders by the adjustment being
22:20um putting in in a in the worst place.
22:22But as as that notional changes, the
22:25value impact on the existing holders can
22:28be very significant.
22:30And and so to to me, I'm I'm then not
22:34wanting I'm I'm then as a as a user
22:37seeing that as labeled as equity.
22:41there's something else going on beneath
22:42the surface there that I need to be
22:44particularly aware of I think to
22:47understand the impact that can have if I
22:49am actually buying in as an ordering
22:51shareholder in the current structure
22:54that's that's that's I think so I I
22:57appreciate the dynamics of the market
23:00and and the issues there but but equally
23:02there seems to be something quite
23:03fundamental going on here in terms of
23:05the labels we use to communicate to the
23:07outside world
23:09>> the substance then where Would you lean
23:11to rather a narrow view or
23:13>> Yes. I Yes.
23:16>> So to to Bruce's point, you would say if
23:19it isn't fixed,
23:21>> it doesn't mean it. Thank you.
23:23>> I think just that where it it it takes
23:26me, it is not it I don't feel then it is
23:28patient the residual is something more
23:30than that.
23:31>> Some of that variability is providing
23:33something more than that. And that
23:37I I think in terms of the label we put
23:38on it is very important in terms of the
23:40communication.
23:42>> And you think the disclosure
23:43requirements we have come up with
23:45wouldn't be sufficient.
23:50>> It's I I I don't know. We've not tested
23:52them in in that that way. It's it's not
23:55going to have the same
23:56>> impact.
23:59>> Can I ask Nick one followup quickly,
24:01Nick? So if would you propose rather I
24:03mean to make things simpler just go to
24:05that extreme and say we're just going to
24:07go fixed fixed it means fixed and
24:09everything else is on the other side and
24:12I and I accept that there is a very
24:14disruptive impact ignoring that just of
24:17that it I think I' I'd say yes it's a
24:21communication tool yeah that would be
24:23I'd like to to know that's what it is.
24:27Thank you.
24:33Super interesting what you said, Nick. I
24:35must admit I'm I'm more in Nick's camp
24:37to be uh quite conservative on what fix
24:39means. So you said pretty fix. I would
24:42say pretty very fixed. [laughter]
24:45Um
24:47um so I I quite
24:51I I came here in agreement with the uh
24:54with the um with the staff
24:56recommendation. I really like your
24:59explanation Rihanna on the two or three
25:01needs to be fixed uh or that fixed is
25:07fixed. It's pretty fixed. I mean it it
25:11goes back to the way we have uh I have
25:15always applied the the fix for fix
25:17condition to be honest. Um
25:21and I see uh I I fully appreciate what
25:24Nick was saying in terms of information
25:26provided to investors but equally it
25:29goes also as a former preparer to I was
25:32thinking of internal control processes
25:35and there I'm a bit if we start opening
25:37a box uh
25:41or do you for me what would be important
25:43because I have sympathy for what you
25:45were discussing Andreas and and and
25:48Bruce on the on the uh the equity
25:50exposure but I think it's it's not
25:53enough and so for me the most important
25:55question will be if we start opening
25:57slightly the door
25:59uh uh to make sure that the door cannot
26:03open more than uh and that would be
26:05super difficult to but I would have a
26:08very narrow uh spontaneously like Nick I
26:11would have a a narrower interpretation
26:14of the fix for fix condition of course I
26:16do appreciate that I do not come from a
26:18financial company from a non-financial
26:20company. We were impacted by by those
26:23requirements but to a far lesser extent
26:27uh uh than the the financial companies.
26:29What could be interesting is to is to I
26:32don't know who can comment on that but
26:34uh on the um uh the experience they they
26:37may have had with financial companies
26:40that would be useful to see uh uh uh how
26:44um how meaningful this can be to to them
26:48but um
26:50as soon as you start opening it slightly
26:53a door yeah would be spontaneously
26:56reluctant.
26:59Hey notes, Patrina and Tad.
27:05>> Um, thank you for the paper and the
27:08analysis provided. I feel that I I feel
27:13comfortable with the recommendation as
27:14drafted in paragraph 4. I say in
27:17particular because I think it's drafted
27:19a bit differently in the rest and maybe
27:21I have a few comments but I'm focusing
27:22on what I'm see on paragraph 4. I think
27:25it resonates with the idea that this
27:28should be limited group uh of contracts
27:32that are entering into equity and there
27:34are no chairs and also it seems
27:37operational to me which was another
27:40cause of concern from many of our
27:42stakeholders. They just don't know and
27:43they spend a lot of time discussing
27:45things. uh I separate my uh thinking and
27:49analysis to the principle and to the
27:51adjustments and I do not want to speak
27:53at the moment on the adjustments at all
27:55just the principle I think when you say
27:58fixed amount for fixed number it's clear
28:01I think when you say you would meet
28:04fixed amount and fixed number if you
28:06just fix one leg and have a fixed ratio
28:08that's clear to me I think you can also
28:11say if there is a conversion
28:14[clears throat] of less than the maximum
28:16minimum amount this would not mean that
28:18you don't meet the fixed fix that's okay
28:20so I think it's quite robust and packed
28:24um if I understood until now correctly
28:27for for this to be both useful uh in
28:30terms of operational and also limiting
28:32the scope and I think we need to be able
28:35to discuss the adjustment separately
28:38than the core because I think we always
28:40go in our examples so when I read what
28:43you are saying here later about example
28:4614. I had questions but it is because of
28:48how you work with the adjustments. So
28:50just keep it for the next discussion. On
28:52this one I feel comfortable that this is
28:54the right direction. So thank you
28:57>> Katrina.
29:01>> Thank you. Um I think you you captured a
29:04lot of what um I was going to say. So I
29:09agree uh with the staff recommendation
29:11and I did like Rihanna your explanation
29:14that you gave around you know exactly
29:17the how that would work almost like two
29:20pieces of the three are fixed in a sense
29:22which means the third one's fixed as
29:25well. Um I suppose I start to work with
29:27I was thinking you know what are we
29:29trying to do here and and in many
29:30respects around the classification
29:32requirements in this project is we're
29:34trying to you know add more clarity
29:37around the principles that are there to
29:39try and get to greater consistency in
29:41application and and part of that I think
29:44and it feeds off our discussion this
29:45morning is we can only expect to get
29:48hopefully greater consistency in
29:50application if we can develop something
29:51that is sufficiently clear and
29:54understandable.
29:55And that's what I really like about this
29:58direction and and if we can embed you
30:00know some of your explanation as well
30:02Rihanna whilst it it's um you know a lot
30:06of your examples you know that you came
30:09up with Bob I think I think that when we
30:11develop any of this you always need to
30:13test it out against you know specific
30:14examples but I start to worry now at at
30:18this stage of the project if we start to
30:21you know come up with with new ways of
30:23thinking about it or or new things. You
30:26use the word acceptable, you know. So
30:28within things, some things are
30:29acceptable and and some are not. I think
30:32that means drawing some new lines and
30:34somewhere if we start to come up with
30:35equity exposure, equity risk. I mean,
30:37what do we mean by that? It doesn't that
30:40bring up potentially subjective
30:42judgments about how that would be
30:44applied and to me it just seems to go in
30:46the opposite direction of what we're
30:48trying to achieve here. So, I I like
30:52this direction that it's pretty fixed.
30:56Um, and and any clarity that we can add
30:59ultimately in the drafting around this
31:01along the lines of what you talked
31:02about, Rihanna, the two or three pieces
31:04being known. I quite like that known
31:05wording. It it comes up later in the
31:07adjustments, you know, especially when
31:08we're thinking about time and I think
31:10there's quite a nice link between that,
31:12but but that works for me. Thank you.
31:15Yeah. for you and secre
31:19[clears throat]
31:21thank you Angie and Rihanna the
31:24explanation I I also support the staff's
31:27recommendation I I actually don't like
31:31the answer in example 20 for obvious
31:34reason I think that uh honestly I see
31:36more merit in example 20 than in example
31:4014 because actually what it's trying to
31:43achieve with example
31:4620 is something that I understood that
31:48we are not speaking that is the the
31:51concept of preservation is not the way
31:53that when we refer to preservation is
31:55not the preservation the meaning of
31:57relationship it's it's about nature
32:00timing
32:02uh that's why and then we actually
32:06uh fix the inconsistence changing the
32:09conclusion in example 14 uh I mean that
32:14I have
32:15for example 20 in terms of not have if
32:18you could change the conclusion example
32:2020 I would be happier but I understand
32:23why we are we can't do that uh but one
32:26thing that strikes me when we discussed
32:28this uh this fixed ratio it's exactly as
32:33Nick said I was thinking about for
32:34example if we're talking about 100
32:36shares okay if it is 1,000 shares and if
32:40it is 100,000 shares I mean that even if
32:43it is the fixed ratio in relation to the
32:46current shareholders it's a big impact I
32:50mean it's if it is a good good deal I go
32:52for 100,000 if it's not I just go for
32:55100
32:56that's that's why I I can understand at
32:59the same time when I look at the
33:01situations for example that the number
33:03can change because I'm incorporating the
33:06acro interest sounds reasonable for me
33:10like how can I reconcile
33:13uh How can I keep the the door open for
33:16these situations that makes sense? And I
33:18think that it's resonate with actually
33:20Bob was trying to say sorry if I making
33:23if I misread what you said but it's
33:26there are situations where actually it
33:29genuinely there is a equity exposure but
33:33I just don't think that we are we try to
33:36do to find this solution for many other
33:39problems that we have and then we just
33:40realize that there is no way to just
33:43open a little the door the door will be
33:45opened that's why I I think that is
33:49safer if we keep the fix or fix as it
33:52is. It's it's just because of this. I I
33:54I saw a lot of things that we could do
33:57but I just think that we can't do this
33:59now because actually it will cause so uh
34:03much disruption the market because
34:06actually if we start talking about
34:08fixing ratio I want to talk about
34:10inflation and benchmark interest because
34:13it it makes sense but yeah
34:16[clears throat] that's why I I support
34:17the staff recommendation I understand
34:19the fixed ratio but I in this point I I
34:23support the the staff recommendation.
34:27Well,
34:30>> I have a somewhat similar view to
34:32Atrino. Um, you know, what we're trying
34:35to do here is we're trying to address
34:38existing challenges, right? We're not
34:40trying to define what is equity. We
34:43actually do have a definition of what is
34:45equity in IS32. Not that that it's a
34:48very good definition by all means and it
34:51was written obviously before any of you
34:53guys were instructuring but um you know
34:56it's been a
34:59made good money off of that [laughter]
35:02but but you know I think what we're
35:04trying to do is reduce the differences
35:06in current application. This is kind of
35:07what we're trying to do. They you know
35:09sort of the the very wide bright line
35:13that we're having right now. we kind of
35:15try to narrow the bright line to improve
35:18a e make application easier and increase
35:20comparability right so let's not get
35:23dragged down rabbit holes trying to
35:25figure out what equity is equity risk
35:28and equity exposure I I think that'll
35:30just leave us to nowhere um and and to
35:33be honest I don't you know maybe
35:35contrary to what Nick said I don't think
35:36any user or even regulator really cares
35:39about what we call equity in the first
35:41place but that's a different topic Um
35:45[clears throat]
35:46so
35:47for me thereby the threshold is what is
35:50clear and easy and doesn't disrupt
35:52practice enough and obviously the fix
35:54for fix which your suggestion is is
35:56clear and easy where I have questions
36:00after Bob comments is how much
36:02disruption are we imposing on the market
36:05and have our stakeholders understood the
36:09proposal well enough to answer that
36:11question.
36:13Right? Because I think the problem that
36:14we're having is, you know, this paper
36:17was really good. It was a clear paper,
36:20but it's kind of after the ED type of
36:23paper. We really didn't get much
36:25feedback on the fix for fix, right? When
36:28I looked at the December paper, there
36:30wasn't much in it. So that's so my
36:33question then is how much are we
36:35disrupting practice by putting this into
36:37place? And I don't know enough about the
36:38market to really answer that. But I'm
36:40not sure that we got enough stakeholder
36:43feedback to make this decision here. No,
36:46that's what gives me pause. Thank you.
36:51>> Thanks, Ra and Paul.
36:56>> So, Floren went before me. Um,
36:59[laughter]
37:00first I think there's a lot of good
37:02comments. It's why we have these
37:04discussions around the table. I came in
37:06supporting the staff view, but sort of
37:09the same questions I have in my
37:11checklist. First, market conditions. So,
37:14to what extent are we pulling away from
37:16current practice and are going to cause
37:18more change versus less relative to the
37:21exposure graph? The second one is I know
37:24they are not remotely converge, but US
37:27GAP versus IFRS. So, are we moving
37:30farther away from US GAP with the
37:32changes we'd be making right now?
37:35But then the third um kind of goes the
37:38other way which is I really struggle to
37:41see how to differentiate some of these
37:43things in the middle. The entire premise
37:45of this project is we tried redrawing
37:48the line and it did not go well. Right?
37:52So what we're doing here is
37:54acknowledging that there are equity
37:56instruments with liability like
37:57characteristics and there are debt
37:59instruments with equity like
38:00characteristics and we may have to be
38:02okay living with that payments and I
38:04think the good news is that the
38:06disclosure requirements we've created
38:09are robust to the challenges I'm seeing
38:11here. So we have things like the maximum
38:14dilution where if you had a fixed ratio
38:16you would see that disclosed. um sort of
38:19a good real time test for what we've
38:22already entitly decided.
38:25Um on the question of equity risk,
38:29I don't think this is equity risk. When
38:30I looked at the fixed ratio example, I
38:33went back and I built my little Excel
38:35model
38:37because that's what I do. Um,
38:41and what you have is at a certain point
38:44you have debt risk and then you have no
38:47risk which is sort of where the share
38:49price is between zero and 10 in the
38:51example and then you have levered equity
38:54exposure because there's an extraction
38:57of value from common shareholders to
39:01what is essentially a derivative
39:02instrument. Um, so to me that's not
39:06quite the same as common shareholders
39:08equity recognizing that this is not
39:11common equity. I guess what I'm saying
39:14is
39:15I'm very sympathetic to both sides of
39:19the argument here. I can see the
39:21simplicity of going to fix for fix, but
39:23I sort of similar to what Florian said,
39:26I really want to understand what the
39:27practice implications would be before
39:29I'm kind of ready to commit.
39:41It's really a tough question because uh
39:45I feel like both challenge is um not
39:50asking us um opening a new door that's a
39:54try to manage to
39:59create a door between to uh practice
40:03existing practice. But uh what we try to
40:07do is uh setting up a little bit
40:10narrower door to come to um more limited
40:16number of items to get through. But um
40:21I actually like a staff um
40:25basis of um proposal to think uh if two
40:30or three fix and then fix that's quite u
40:35if we don't think about adjustment uh we
40:38are going to discuss uh the next topic
40:41it's quite simple um [clears throat]
40:45practical
40:48way to apply our standards. So I think
40:53there would be quite a sacrifice in the
40:57practice probably the
41:00more flexible application of fix or fix
41:04exist um right now. But uh if we try to
41:09achieve the objective to apply the
41:12drawing line it and we can see the more
41:17consistent application
41:19of our standards.
41:22I think uh I yeah I just want to support
41:27the direction of travel to see whether
41:31this work in our standards.
41:34after thinking about the adjustment we
41:37can allow them to use.
41:41>> Oh,
41:44just wanted to comments I heard um one
41:49that just comes off the top. Regulators
41:51absolutely care about this.
41:54Okay. type of experience they do. Um,
41:58agree what we've been trying to do in
42:01this project is address practice issues.
42:05In my experience, my observation is that
42:08there was diversity in views in practice
42:13and that's what we're trying to address.
42:18We ex in the exposure draft we put in
42:22fixed ratio in there. If we are to back
42:27and and I and staff, please correct me.
42:31My reading of the feedback is that we
42:34were supported in that. They just asked
42:37questions to clarify that. If we then
42:41scale that back, what are we going to
42:43put in the basis for conclusions? We
42:46scaled it back because your questions
42:47were too complicated.
42:50That just doesn't I'm sorry I'm being
42:52very pjorative, but that just doesn't
42:54make a lot of sense to me. Nick, I
42:59understand the point about telling
43:01investors what is their exposure, what
43:04are current shareholders exposure to
43:07potential future shareholders. But for
43:09me, that's what EPS does.
43:13If we were to put this and make
43:15companies having to mark to market at
43:17this now I'm going to have put aside
43:20time value just intrinsic value I'm
43:23going to have gains and losses that are
43:25just based on company share price. So as
43:27companies really do well
43:30their profits are going to go down and
43:32as companies do really poorly
43:35their their profits are going to go up.
43:38I I just don't think that's a good
43:40answer. And so I think we do I think we
43:43owe it to those who you know proide
43:45feedback and said yeah we support this
43:47ratio uh fixed ratio model just give us
43:52some more guidance about when how do I
43:54apply it I I'm just of the view we we
43:58need to explore that
44:01[snorts]
44:04you want to come yeah go ahead
44:10I think
44:12we are not too far
44:15on on some things right because I think
44:18even where I think we might have
44:20different understandings is exactly what
44:22we meant in the exposure draft because
44:25even though we put in the fixed exchange
44:27treasure we didn't mean to do away with
44:30fixed amount and fixed number of shares
44:32we just wanted to bring in the fact that
44:34sometimes you don't have one of those
44:36you've got one plus the other and but
44:39unfortunately when we drafted it, I
44:41think that the focus fell on the just
44:44the exchange. All we want to do is is
44:46get back to the point where we say okay
44:47there are two things that that you know
44:51needs to be fixed
44:54and and then we are going to get to the
44:55adjustments and I think a lot of what we
44:57are talking about when we talk about
44:58interest and we talk about inflation
45:01for example those are in the adjustment
45:03camp right because when I start with it
45:06it needs to be like like I said pretty
45:08fixed this is a fixed number of shares
45:09with fixed amount I guess the question
45:12is and some of you raised
45:14that if you have let's say you have a
45:18bond where interest is accumulated and
45:20it's fixed interest for example you know
45:23over the life of this bond the maximum
45:25amount it could be is 120 because it's
45:28100 principle plus accumulated interest
45:30of 20 and for that 120 you might give $1
45:34per share and so it's 120 shares or if
45:38you pay interest over the period yeah
45:40the amount will come down because now
45:43you've paid the interest, but so will
45:45the number of shares come down because
45:46you've got the fixed ratio. Now, I think
45:49the question is just in your minds for
45:52those of you that say you'd like a
45:53narrow view where things are fixed. Is
45:57this still a fixed amount? Because I
45:59know what the maximum is and the only
46:02thing that could make it less than that
46:05is because I'm paying the interest on or
46:07I might even pay some of the principal
46:09amount, but it's not a it's not a
46:13variable. It's not an unknown. It's not
46:14going to grow, right? It's 120 or less.
46:18So, in your view, is that still fixed?
46:21Because that's what I mean with pretty
46:22fixed. This is I I sort of know what it
46:25is but it could be something less.
46:32>> So if you would have taken a different
46:34example of an option that you can
46:36exercise just part of the amount I would
46:39say yeah that's fine with me it's less
46:40than the maximum. The choice of the bond
46:44is a bit tricky because I think that it
46:46goes through the adjustment because you
46:49have a formula with one x which is time
46:51and each time you might have the
46:54differences. So this I would still say
46:56it's okay but I get there for me I get
46:59there through the adjustment because
47:00there are changes because of the passage
47:02of time but I'm okay with what you
47:05explained as an idea. If it's less than
47:08the maximum, by the way, for me, for any
47:10reason, I don't care. I think I think it
47:13should be okay. It would not disrupt the
47:15model, the base model for me.
47:21>> Also for me, because I think if we're
47:22saying the exercise amount could change
47:25because of a crude fixed rate interest,
47:27then that's fine for me because to me
47:29that fits into what you described.
47:31Rihanna's talking about known amounts.
47:34It's kind of yeah we know the the actual
47:36amount could be different but it's a
47:38known amount because the acrruel is
47:40based on a fixed interest rate almost
47:42and I don't want to over complicate
47:44things to get into the next thing almost
47:45the reason I feel comfortable there is I
47:47can see I don't see it as being that
47:49different to what we will allow as the
47:51you know time based adjustment so
47:54assuming we agree with the time based
47:56adjustment I have no objection to this
47:58either so that fits within my sort of
48:01view of fixed
48:04Yeah,
48:06I I would agree with with
48:09Yeah, I think I think it it fits. It's
48:12pretty obvious in the example you were
48:13saying with the paid interest for me
48:15that's debt. It's financial liability.
48:18Um so the rest doesn't mean that the
48:21rest is is also financial liability. I I
48:24agree.
48:30So it's almost like a example for right.
48:34Yeah. So uh even with the reasonable
48:38paper I thought that I shouldn't change
48:40the conclusion.
48:42It should be fixed. [clears throat] So
48:45I'm stay with that conclusion right now.
48:52It's it's certainly more palatable
48:54having something that's that's could be
48:56open-ended just in terms of the ratio
48:58itself certainly and then and then we
49:01would there' be the disclosures
49:03alongside that and the disclosures work
49:05under those circumstances because you
49:07can actually calculate the maximum
49:08dilution.
49:11>> Okay,
49:12>> thanks. That's helpful.
49:17And and I forgot to say thank you Zach
49:20and Nick for the for the last comments
49:22you provided on the disclosure
49:23requirements we put forward the com the
49:26interactions between what we are
49:28discussing today and the disclosure
49:29requirements we we decided upon that's
49:32for me that's quite useful
49:36great
49:38um thank you for that last part R and
49:41everybody else that that helps It makes
49:44me realize that maybe I wasn't as far
49:46off as
49:48>> with uh everybody else. Um
49:52I still think this
49:54>> I think that there's there's more to
49:56talk about when we get to the adjustment
49:58especially about time and and what that
50:02means. But I I think
50:05where I I think we are is is well fixed
50:08for fixed is two things need to be fixed
50:11out of the three. Um and you could have
50:16an an option. We've had some of the
50:18examples where well if I exercise on
50:20this date it's 55 shares for $55. If I
50:23exercise on that day it's $110 for $110.
50:26different amounts, but it's still fixed
50:30because I know what the amounts are and
50:33nothing else changes in that. So,
50:35there's different times and it works for
50:37Bermudan options as well where you've
50:40got three things. You might not have the
50:42same exchange ratio between them, but
50:45it's sort of three standalone options in
50:48a way that that's combined into one
50:49contract. So, I think
50:52that's where everyone sort of I I think
50:54we are. So at least on that part of fix
50:56for fix I think we are happy and that's
50:59sort of what our recommendation is
51:01saying we can then talk about the
51:02adjustments under the next paper.
51:06>> Okay. So you kind of preempted my
51:09question um because um the first the
51:12example that you that we were working on
51:1355 versus 110 still works with the same
51:17ratio, right? But but I think your
51:20Bermuda example brings in a variation to
51:22that and say well there could be
51:24different ratios, right? As long as that
51:26ratio is fixed.
51:28>> Yeah.
51:28>> Right. And I think that is something
51:30that we agreed on beforehand and I think
51:32that that is important. Now
51:36you asked for a vote and I I noted that
51:39a few people have said I'm not entirely
51:41sure whether we need to do any more
51:43work. Are we happy with a rearticulation
51:46of that principle in that sense?
51:48>> Yes.
51:48>> But I I forgot I wanted to respond to
51:51your question about the feedback. I
51:53think
51:56when and Angie can correct me if I'm
51:58wrong, but I think what happened in the
51:59feedback is people focused on the
52:02adjustments when they commented on it
52:05and it's because they were focusing on
52:07the adjustments and how this fixed ratio
52:09is now interplaying with the adjustments
52:11that that's where the feedback went and
52:14so people wouldn't wasn't really
52:16focusing on the front bit because you
52:18know the front bit we all know was
52:21pretty fixed. they were just too happy
52:22that we are looking at something that is
52:24not you know set in stone and we are we
52:26are willing to look at you know some of
52:27the adjustments that we described in the
52:29ED. I wouldn't read into the feedback in
52:32saying well people didn't really comment
52:34on the front part too much because they
52:37were more focusing on the adjustments
52:39and trying to get what they were doing
52:42and the different practices through the
52:44adjustments bit which is what we will
52:46discuss later but that front bit
52:50I just think we have to be clear what
52:52that means because that will then
52:54influence what we think about the
52:55adjustment.
52:58Everybody clear on that? So my just one
53:01point is um this all this discussion I
53:05think related to 4 A
53:08>> I haven't heard that much about 4B being
53:11the foreign currency thing people
53:14content with that are there any
53:18knots around the table. All right. So,
53:22are we happy to to vote on the staff
53:24recommendation
53:28again? So
53:30this the recommendation here is
53:35not so the recommendation is to have the
53:38two pieces
53:40of the ratio to be fixed versus do we
53:44want two of the three pieces to be fixed
53:48>> that I mean that's so so two of the
53:51three pieces are fixed
53:53>> which is a little bit different from
53:54that what the recommendation is here
53:56>> which is why I'm trying to Okay,
53:59>> just making sure what we're voting on,
54:00right?
54:00>> Yeah,
54:01>> I was getting there.
54:02>> Oh, apologies. Yes,
54:03>> no worries. [laughter]
54:05>> So,
54:07and then for that record, I think it is
54:09important that we um that we probably
54:11refine that staff recommendation
54:13slightly, right? because um
54:16I think it is the original staff
54:18recommendation but with your amended
54:21introduction that we look into that
54:24tripartite
54:26>> um relationship where two parts would
54:29have to be fixed and that would mean
54:31that the third part automatically is
54:32fixed as well but we don't specify which
54:34two have to be fixed
54:36>> that's that's the one variation okay
54:39everybody clear on that okay can I see a
54:42show of hands who would support That
54:47>> 13.
54:48>> Okay.
54:51Good. One down.
54:58Over to you.
54:59>> May I ask a question on this one?
55:01>> You may. Do
55:05would you consider bringing that to the
55:07FICG just to to sound check or not?
55:15One more.
55:17>> The plan is to take it to the FCG on the
55:194th of March.
55:20>> Okay, makes sense.
55:22>> Oh, sorry. 11th 11th of March, but yes.
55:25>> Okay, that's Yeah, me ID.
55:30All right,
55:33one more.
55:34>> Yeah, [laughter]
55:35>> we're moving on to agenda paper 5B. So
55:38this is the paper that looks
55:40specifically at the adjustments to the
55:42amount of consideration or the number of
55:44own shares or both that would will be
55:47consistent with the fixed forix
55:48condition and we considered feedback
55:51about the terminology you know that it
55:53needs to be easy to understand and not
55:55ambiguous. So we think it would be
55:57better to describe the adjustments by
55:59reference to what they were intended to
56:01achieve or what they intended to
56:02reflect. So we've got new terminology
56:06where we're referring to those that
56:07compensate the future holders of the
56:09equity instruments whereas others are
56:12solely a function of time. So in
56:14paragraphs 8 to 27 of the paper we look
56:17at the adjustments that compensate the
56:19future holders and we considered things
56:21like the extent to which they are
56:23compensated as well as specifically
56:25change of control adjustments. Is that
56:28compensation relative to current
56:30holders? And then in the latter half of
56:33the paper, we looked at adjustments that
56:34are solely a function of time. Looking
56:37at what do they intend to reflect, how
56:40are they different from time value of
56:42money and also whether indexation to
56:45inflation indices could in some cases
56:48meet the fixed forix condition. And our
56:51recommendations for the refinements are
56:53in paragraph four of that paper. And
56:56overall we think the the focus needs to
56:58be on the objective of the adjustments
57:01and the issues ex the issuers's exposure
57:03to risk compared to issuing the
57:06underlying equity instruments. So it's
57:08not necessarily about the actual quantum
57:11or amount of compensation. It's more on
57:13what's the objective and what's the
57:15overall exposure of the issuer. So I'll
57:18pause here and invite comments and
57:20questions.
57:28I can start because it's more question
57:30than engineers. Roy with the staff
57:32recommendations
57:34um with uh with uh the following
57:37questions because when I read paragraph
57:3910 and 11 and in contrast with the
57:43example you're providing in paragraph 9
57:45on the of the paper um it it was not
57:49exactly clear to me what future holders
57:53exactly entail in your in your
57:55recommendation.
57:56Um so for instance uh in the in this
58:00example what if uh entityb already owns
58:05uh the uh equity instruments of entity?
58:09Would you then still consider
58:12uh that entity B would be in that in
58:15that in the circumstances of the example
58:18be considered a future holder
58:22in the context of your recommendation? I
58:24I suspect so.
58:26uh if you could clarify that and and
58:28then uh then the question is on the on
58:31the terminology is future holders the
58:35the most appropriate or should we refer
58:37to future holdings?
58:40I don't know what to what what to say
58:42but for me it the the I struggled with
58:45the words to be honest there.
58:49>> Sure.
58:50>> Um yeah I'll quickly just say that we do
58:52intend clarifying the meaning. So
58:53although it wasn't something um that we
58:55asked you to vote on, it will be part of
58:57the drafting and we're looking at those
59:00parties to the derivative that's been
59:02assessed for classification that will
59:04become holders of the equity instruments
59:07as a result of of that contract. So it's
59:09the parties that we're trying to uh
59:12compensate them for their for the
59:14economic their economic interest because
59:17of this adjustment. And so in the
59:19example, entity B may already have a
59:21holding. So it it will still based on
59:24the derivative it will become a holder
59:26of ordinary shares may not be the first
59:28time holder but it because of the
59:31contract it is the party that will
59:33become a holder.
59:36>> Thank you.
59:39>> I think I think we basically mean it's
59:42the future holder of the instrument
59:44under the derivative.
59:45>> Yes.
59:46>> That's because we are looking at a
59:48derivative. It's under this derivative.
59:50it will be the future instrument holder.
59:55>> And to be honest, it's the way I read
59:56it, but I
59:58was not 100% sure. So that's why I'm I'm
1:00:02asking the question. So whatever we can
1:00:04do to clarify that crystal clearly in
1:00:06the drafting and probably it's a
1:00:08drafting issue. It's a drafting issue
1:00:10rather than anything else. But be thank
1:00:20you. I have I'm in general agreement. I
1:00:24have a few I think questions or
1:00:27clarifications um that I need. Um so on
1:00:32the first recommendation, sorry, I'm
1:00:33looking at 4A. uh when we speak about
1:00:36the changing from preservation
1:00:39adjustment to adjustment for
1:00:40compensation and we have those two
1:00:42conditions there the first conditions
1:00:45and to place the future holders in a
1:00:47similar economic position relative to
1:00:49current holders.
1:00:51I am thinking how much work do we expect
1:00:56our stakeholders to do to prove that
1:01:00this is aiming to put future
1:01:03shareholders in a similar position. To
1:01:06me it would be sufficient to say if uh
1:01:09based on occurrence or non-occurrence of
1:01:11a certain event you give them early
1:01:14option to convert than they had before
1:01:17or a better rate that's enough but I
1:01:19don't know from the paper whether we
1:01:22expect that the level of evidence is
1:01:25higher. I would rather be on the lower
1:01:28side, but I just want to make sure.
1:01:33Should I continue or do you want to?
1:01:37Well, I can just maybe add. So, here we
1:01:40wanted to come up with a an overall
1:01:42objective because I guess not all of
1:01:44them will be compensation for an earlier
1:01:47conversion like in the example with the
1:01:49share splits or that, you know, it's
1:01:50it's different types of of compensation.
1:01:54So um we were trying to get away though
1:01:56from a quantitative analysis where
1:01:58someone might think um if there's a
1:02:01formula you now have to do this detailed
1:02:03calculation to work at exactly you know
1:02:05what is the amount is it greater than is
1:02:08it less than and there are some
1:02:09adjustments that it will be quite clear
1:02:11you know that it's not going to have any
1:02:13compensation to the ordinary
1:02:14shareholders so those couldn't pass
1:02:16because they're not
1:02:18>> intending to compensate
1:02:22well I I think just to your question
1:02:24It's the lesser. We are trying to reduce
1:02:27the effort
1:02:28>> that people and which is you know it's
1:02:30like maybe there are better words to say
1:02:32but I think what we mean is they are
1:02:35getting something that the ordinary
1:02:36shareholders are also getting. So put it
1:02:39differently we don't want them to get
1:02:40something that the ordinary shareholders
1:02:41are not getting because if you get that
1:02:43then
1:02:44>> but it can be it's dumb. It doesn't need
1:02:46to be the full we are not asking that
1:02:48they just
1:02:48>> and we're not to get something in that
1:02:50direction. Right.
1:02:52>> Yes. And it's not a comparison of the
1:02:54amounts or the extent to which it's just
1:02:56that
1:02:58either the ordinary shares are getting a
1:03:00special dividend and therefore we adjust
1:03:02the derivative for that special dividend
1:03:04to put them as if they've got a special
1:03:06dividend. It's that kind of but it's on
1:03:09the lesser. We're trying to reduce the
1:03:11effort.
1:03:12>> I'm continuing.
1:03:14>> Uh so thank you. That's the answer I was
1:03:16hoping to hear and I think we we need to
1:03:18work with the words to make sure that we
1:03:20are not asking for a lot on the second
1:03:22uh so A2 does not expose the entity to
1:03:26any additional risk compared to issuing
1:03:28the underlying equity instrument. Again
1:03:30here I wonder whether someone need to
1:03:34prove
1:03:35what how the additional risk compare to
1:03:38the risk that uh that are related to the
1:03:42underlying equity instruments. Then I
1:03:44ask myself, wouldn't it be enough to say
1:03:47just does not expose the entity to any
1:03:49additional risk? This is something you
1:03:52can think of. It does not stop me from
1:03:54agreeing with this. It's just that I
1:03:56don't want to overburden our
1:03:59stakeholders with analysis that is not
1:04:01necessarily needed. And if we can go on
1:04:04the simple route, I would prefer. So I
1:04:07don't need an answer on this one. Um and
1:04:10then if I can continue I I'm okay with
1:04:13with the rest and on 4D the
1:04:16clarification. I really like that we
1:04:19have the the known the specified and the
1:04:23uh be determinable based on a specified
1:04:25formula in which time is the only
1:04:27variable. I think that you can use this
1:04:29concept also for the occurrence or
1:04:32non-occurrence of the event that driven
1:04:34compensation. So if you had it in a
1:04:36formula, the only variable would be
1:04:38happened or not. And and and I I think
1:04:41it's a good illustration of what we mean
1:04:43using the formula. I assume that if in
1:04:45the formula you have both time and both
1:04:47and the occurrence, you still be fine.
1:04:49It's just that if you add another x
1:04:51there, that's that's enough. We're done.
1:04:53It's not equity anymore. Correct.
1:04:56Um yeah, I think I'm good. Thank you
1:04:58very much,
1:05:00>> Bruce.
1:05:04>> Thank you very much. So just very
1:05:06briefly, I mean I I I'm in agreement
1:05:07with the recommendations that we've got
1:05:09here. Um to start off with, I I like the
1:05:11replacement of the terms. I think they
1:05:12actually make a lot more sense. I think
1:05:13they're more intuitive when I read them.
1:05:15So I like those. Um I interestingly had
1:05:17a similar comment to yours, but I'm not
1:05:19as concerned and and I'll tell you why.
1:05:21It's
1:05:22I've said this before in other projects
1:05:24and I'll say it again. If you're
1:05:25entering to complex financial
1:05:27instruments, you need to do a bit of
1:05:28work to get the accounting right. Um
1:05:30these are not the kind of things that
1:05:32anme is going to enter into a small
1:05:34corporate. These are going to be enter
1:05:35into but large corporates who generally
1:05:37have complex treasuries or technical fun
1:05:40people people who can deal with these
1:05:42things. And if I look at the things we
1:05:43ask them to evaluate there I mean
1:05:45they'll understand exactly what the
1:05:47economic position is of any trigger
1:05:49adjustments trigger events that they're
1:05:50going to put into those instruments and
1:05:52they will definitely understand the
1:05:53risks around them. Um that that's what
1:05:55any public company would do if they were
1:05:56entering into or issuing any such
1:05:58instrument. So I I'm not concerned about
1:06:00those. I think that the the fair shells
1:06:01we put into me are proportional to the
1:06:04types of instruments I'm expecting
1:06:05people to issue in this market. So I'm
1:06:08supportive of what we put into those.
1:06:09Yeah. And all in all, I mean just
1:06:10working through all of them. I I like
1:06:12what you put in. So support all the
1:06:13other recommendations. Thanks.
1:06:16>> I do.
1:06:19>> Thank you. And I I also app
1:06:23recommendations. One one thing that
1:06:25actually uh when I was reading the
1:06:28recommendation here on paragraph 15 when
1:06:32you refer to down round adjustments
1:06:36because actually say in for a
1:06:41one
1:06:43that he aims to place the future holders
1:06:45in a similar economic position relative
1:06:48to the current holders after they
1:06:51specify the trigger event.
1:06:54Most of these down round adjustments
1:06:56they are because actually I have a a
1:06:58issue of shares for a lower amount than
1:07:01the conversion for the previous
1:07:04instrument.
1:07:06And then the future holders of the
1:07:09future or the current holders after the
1:07:12trigger event includes the the
1:07:15shareholders that just uh bought the
1:07:19shares for a lower amount. I mean that
1:07:22compared with this shareholder, not the
1:07:25previous one, actually the the holder of
1:07:28the instrument is is would actually uh
1:07:33be in the same position
1:07:36because I I have two shareholders when I
1:07:38have this type of event. I mean that the
1:07:40current shareholders and the
1:07:42shareholders that just entered into the
1:07:44company uh paying a lower amount or a
1:07:48conversion.
1:07:51I I don't think that uh we when we wrote
1:07:55here that current holders after the
1:07:58specified trigger event
1:08:01uh we thought about that but it's I I I
1:08:05agree with this D recommendations just
1:08:07because the way that I'm looking here it
1:08:08sounds like the down round adjustment
1:08:11actually needs to equalize the holder of
1:08:15the instrument with this second group of
1:08:17stakeholders.
1:08:19It's similar situation for when you have
1:08:21a change in control with the tag along.
1:08:29Uh that's why I
1:08:32I agree in principle with the
1:08:34recommendation. It's just when I when I
1:08:36saw that for loss of liquidity
1:08:38everything I can yep that doesn't it
1:08:41fails the fix for fix but especially for
1:08:43the down route adjustments uh because
1:08:47this is quite common law clause
1:08:52and what they probably would change the
1:08:53clause is to say that okay there is no
1:08:55down just but you cannot issue shares
1:08:58for a for an amount that is lower than
1:09:00what we have uh for the conversion
1:09:03ratios I don't know if it's I'm just
1:09:06trying to figure out how it would work
1:09:07in practicing
1:09:10this one actually will
1:09:13will actually not allow this type of
1:09:16instrument anymore in the market because
1:09:18they wouldn't get the classification.
1:09:25Yeah. So um so maybe it might help if
1:09:28we're going to clarify the meaning of
1:09:29current equity holders as well and those
1:09:32are the parties prior to the event that
1:09:34triggered the adjustment. So um that
1:09:37already hold the shares. So it wouldn't
1:09:39be from the ones in the new issue of
1:09:41shares. So when the wording looks at
1:09:44comparing the um the future holders
1:09:48position to current holders we we mean
1:09:51the current holders
1:09:54before the the event. So before the
1:09:56issue. So so in other words the focus in
1:09:58that in that adjustment is on the future
1:10:01holders and whether they're going to
1:10:04benefit more um than the than the
1:10:08existing holders and those existing
1:10:09holders will get nothing on the down
1:10:12round adjustment. So those ones would
1:10:15fail the fix for fixed condition
1:10:19and I agree with that. It's just because
1:10:21after the event I had two shareholders.
1:10:24Yeah,
1:10:25>> that's the point.
1:10:32>> Yeah. Um, so I'm largely in agreement
1:10:35with the proposal. The one place I'm
1:10:37still struggling is with that similar
1:10:40economic position, right? And that's
1:10:43because of exactly what Bruce outlined
1:10:46where
1:10:47[clears throat] these are instruments
1:10:49that are largely sold.
1:10:51Um, so someone has done all of that
1:10:54analysis or this thing ever goes out to
1:10:56market and is then purchased by other
1:10:59people. So I don't see it as a big
1:11:01burden to actually do the economic
1:11:03analysis. And I would say to Bruce's
1:11:05point, if you haven't done that economic
1:11:07analysis, you know, some regulators
1:11:09should probably prohibit you from
1:11:10issuing these securities. Um, so I I
1:11:14worry less about that. I just wonder if
1:11:16there are other things we could use to
1:11:17get at the concept and it doesn't need
1:11:20to be strict but that it shouldn't put
1:11:22you in a better position then something
1:11:25like that. Um but I agree with the
1:11:28spirit. I just think maybe we can find
1:11:29some better wording on the relationship.
1:11:35>> More advantageous or what?
1:11:37>> Yeah.
1:11:41Yep. I I also support the staff's
1:11:44recommendation um recommendations in in
1:11:47this paper. Um one thing I did not think
1:11:51about but I think it applies and I think
1:11:52it kind of makes sense is um on the
1:11:56share forshare exchanges I'm thinking
1:11:59that applies to convertible preferred
1:12:01stocks.
1:12:04Um I was thinking more of them like
1:12:06bonds but I don't think it's that. I
1:12:07think it's it's it would apply to so I
1:12:10just want to confirm that
1:12:11>> preference shares for ordinary shares
1:12:13kind of notion.
1:12:14>> Um and then the other one I just want to
1:12:16highlight because it's not been talked
1:12:18about but I think is extremely important
1:12:21is your uh recommendation on multiple
1:12:24adjustments. You got to think about all
1:12:27the different potential scenarios and if
1:12:29any part fails the it's important for
1:12:32people to understand that because they
1:12:33might be thinking about because in IS-32
1:12:36there is a bifurcation model
1:12:38>> bifurcating the equity from the
1:12:40non-equity piece but not for equity
1:12:43derivatives.
1:12:45So if any piece fails then it all fails.
1:12:50Thank can I just uh explain the share
1:12:53for share no sorry explained for the
1:12:56share for share we meant to apply to
1:12:58only derivatives and the that question
1:13:00about preference shares um convertible
1:13:02into ordinary came up in the context of
1:13:04the non- derivatives so the assessment
1:13:07that we were I think it started in
1:13:09December paper there was same question
1:13:11came up like could you could you have an
1:13:14a failing the share for share because of
1:13:16down rounds in the preference shares
1:13:19that are convertible one to one with to
1:13:21the ordinary shares. And that's where we
1:13:23were assessing um it more as a non-
1:13:25derivative because you could avoid that
1:13:29down round the issue of the of the
1:13:32triggering the down round. So you could
1:13:33still get to equity classification. It
1:13:36wasn't as important I guess to get some
1:13:38exception.
1:13:39>> Okay. So I'm wrong. So my in my
1:13:41convertible preferred doesn't apply
1:13:44because it's not a standalone equity
1:13:48derivative. It's embedded in the
1:13:50preferred and therefore it's a different
1:13:55>> yeah there is a view that
1:13:57>> there is a view that do you have an
1:13:59embedded derivative in the equity
1:14:01instrument but that's not something um
1:14:04that we touched on yeah but if it was a
1:14:06convertible bond then the it would be
1:14:09the share there
1:14:11>> because we buy for
1:14:12>> yeah
1:14:18anyone else.
1:14:21Okay. And I see a show of hands who
1:14:23agrees with the staff recommendation
1:14:26>> 13.
1:14:30>> Very good.
1:14:33>> Moving on to the final paper, the
1:14:35project of date.
1:14:41Um the paper 5C
1:14:50Paper 5C is just about the project
1:14:53update.
1:14:54Um, and we do in that paper is we
1:14:58include a summary of the tensitive
1:14:59decisions to date and the next steps in
1:15:01the project. And maybe just to mention
1:15:04that there are some remaining
1:15:05classification topics that are more
1:15:07contentious than others and that
1:15:09generated a lot of diverse feedback from
1:15:12stakeholders. So when coming up with
1:15:14potential refinements to those
1:15:16proposals, we do anticipate some further
1:15:18research and additional consultation
1:15:20with our consultative groups and
1:15:23[clears throat] overall we believe that
1:15:25the ISB's technical deliberations um
1:15:28could be completed by the end of 2026.
1:15:31Thereafter the staff will ask for
1:15:33permission to begin the balloting
1:15:35process of the package of amendments
1:15:37which will affect I32 if 7 18 and 19 and
1:15:43those final amendments um would then aim
1:15:46to be issued in 2027. So I'll pause here
1:15:49and invite any comments or questions
1:15:58questions anyone all clear.
1:16:03>> Yeah,
1:16:05I'll say this is an ambitious timeline.
1:16:08>> I mean these are contentious issues that
1:16:10have been out there for a long time. Um,
1:16:13so I appreciate the picture working, but
1:16:16also that these are issues where we need
1:16:18to give a lot of attention and make sure
1:16:20we get it right.
1:16:22>> Um, so I would say, you know, keep going
1:16:24as fast as you can, but I am flexible to
1:16:27make sure we get it right. Um, and
1:16:29hopefully we can get that done in the
1:16:30timeline you've outlined.
1:16:36>> Yeah, I would agree with that view
1:16:38obviously given that it doesn't affect
1:16:40me anyway.
1:16:42But um I I think um if I look at the
1:16:45contingent settlement provisions and
1:16:47puts over NCI I mean we've heard
1:16:50sufficient negative feedback and to
1:16:52actually deal that with that and and
1:16:54address it and um make a good case and a
1:16:59solid line of argument that either will
1:17:03mean change for some or the board will
1:17:06come to the conclusion that it's not
1:17:08really worth fighting that battle. I
1:17:10think we either way you need to have a
1:17:12very solid line of argument and robust
1:17:14um position and and therefore I would
1:17:17agree as to whether you spend two more
1:17:19months or three more months wouldn't
1:17:20kill anything. I mean it wouldn't change
1:17:23the finalization of that project in 2017
1:17:27at least not where we're standing now
1:17:29right I think getting it right is is the
1:17:31more important bit I suppose tell you
1:17:36it's just to to make clear the message
1:17:38that even if we do very well and we
1:17:41issue we are able to make all the
1:17:43decisions by the end of the year just
1:17:45clearly say yes as it's written here
1:17:48that it's 2027 that we might have this
1:17:51out especially because many of the
1:17:53discussion we had here we know that
1:17:55there are a lot of things related to
1:17:57drafting.
1:17:58>> Yeah.
1:17:58>> And then this is something that will
1:18:00take some time until we get there. It's
1:18:02just for not people think okay if they
1:18:04end the deliberations by December maybe
1:18:07we can get in March then. No way.
1:18:11>> It's a communication issue.
1:18:13>> Definitely.
1:18:14>> Plus there's an effective date. [snorts]
1:18:19>> Okay. All content.
1:18:21Yeah. Excellent. Thank you very much.
1:18:23Thank you. Good work.
1:18:26Right. And I've seen you already
1:18:34get to another nice fi topic. Nice.
1:19:17Now you're ready.
1:19:19>> Yeah.
1:19:20>> Yay. Okay. Fine. [laughter]
1:19:23Just need to double click the button.
1:19:25That's all.
1:19:25>> Okay. So, no uh introductory words. Um
1:19:28well, good afternoon ISB members. Um, in
1:19:31December of last year, the ISB decided
1:19:34it would begin its postimplementation
1:19:36review of the Iverse 9 edge accounting
1:19:38requirements um, in Q1 of 226, which is
1:19:41now. So, agenda paper 26A um, therefore
1:19:45describes the project plan for this PIR.
1:19:49The ISB um, is not asked to make any
1:19:51decisions at this meeting. Rather the
1:19:54paper discusses the objective of this
1:19:56PIR, the proposed activities and the
1:19:59timeline for phase one of the PI which
1:20:02is the first phase up until the
1:20:05publication of the request for
1:20:06information.
1:20:08But before we discuss this, I would like
1:20:10to give a brief recap of the
1:20:12requirements. As you all know, Iris 9
1:20:14was developed in three phases. is we
1:20:16have classification and measurement
1:20:18impairment and hedge accounting and um
1:20:20is effective for annual periods
1:20:22beginning on or after 11 128.
1:20:26Consequently, the post implementation
1:20:28review also took place in three phases.
1:20:30So we have two which the ISP is already
1:20:32completed and this being uh the last PIR
1:20:35on IRS 9. In terms of hedge accounting,
1:20:39Iris 9 retained not only the three types
1:20:42of hedge hedging relationships but also
1:20:44retained the hedge accounting mechanics
1:20:46in IS-39
1:20:47rather than replacing them with another
1:20:50model. However, we do have a few changes
1:20:52that 9 brings. Just [clears throat] to
1:20:55mention a few, we have more eligible
1:20:57hedged items and edging instruments and
1:20:59if 9 also removes the retrospective 80
1:21:03to 125% effectiveness test.
1:21:07In addition to that, the ISB also made
1:21:10amendments to IFS7, the disclosure
1:21:12requirements, including the requirement
1:21:14for entities to disclose information on
1:21:17their risk management strategies, but
1:21:19also how their hedging activities
1:21:21affects their future cash flows and how
1:21:23hedge accounting in general affects
1:21:25their financial statements.
1:21:28It's also worth remembering that while
1:21:30all other requirements in IS-39 have
1:21:33been replaced by IRS9, entities may
1:21:36still choose to apply the hedge
1:21:37accounting requirements in IS-39
1:21:40rather than the requirements in IRS9
1:21:43which makes this PI slightly different
1:21:45to other PRs as not all stakeholders
1:21:47will have implemented uh the new hedge
1:21:49accounting requirements. So coming now
1:21:52to the objective of this PI consistent
1:21:54with the due process handbook this P
1:21:56will consider of course whether uh the
1:21:59objective of the requirements is being
1:22:01met whether the costs of applying
1:22:03auditing and enforcing the requirements
1:22:05are um as expected and whether the cost
1:22:09the benefits to users are as expected.
1:22:12Now the ICB expected for the hedge
1:22:14accounting requirements in IFRS9 that uh
1:22:17while there would be some implementation
1:22:19and ongoing costs for preparers overall
1:22:22applying hedge accounting would become
1:22:24easier for entities because the
1:22:26requirements are better aligned with
1:22:28entities risk management activities. The
1:22:31ISB also expected due to the the newly
1:22:34added disclosure requirements in IFS7
1:22:36that more um additional useful
1:22:38information would be provided to users
1:22:41for their decision making
1:22:43on the planned activities and timeline.
1:22:46Like with other PS we plan to conduct
1:22:49outreach with our stakeholders. We will
1:22:51be meeting in this first phase one with
1:22:53our consultative groups but also other
1:22:55stakeholders such as um our large the
1:22:58large networks, securities, regulators
1:23:00and and and others. And um in addition,
1:23:03we plan to do a um academic literature
1:23:06review of all relevant literature
1:23:08relating to hedge accounting. These
1:23:11activities, as you know, will then help
1:23:13inform the ISB on the scope of the
1:23:16request for information.
1:23:18We plan to begin our outreach in March
1:23:20of this year, continuing through April
1:23:22and May of this year with a view to
1:23:24publishing the request for information
1:23:27in Q2 2026.
1:23:29With that, I hand it over for ISB for
1:23:32any comments or questions on the project
1:23:33plan. Thank you very much.
1:23:38>> Any comments? That's all.
1:23:42>> Yeah, thank you. Thank you
1:23:45for No. Yeah, I get
1:23:49thank you Juliana and Rihanna for the
1:23:51for the very clear paper. So I'm I'm all
1:23:54fine um with uh uh the project
1:23:58objective, the the phase one activities
1:24:00and the phase one timeline. Um ju just
1:24:04um uh uh a comment um
1:24:09that strike me in a way with hindsight
1:24:13is what you're describing on the costs
1:24:16the the ISB expected that preparers
1:24:18would in would incur one of transition
1:24:20cost or and your listing and then some
1:24:24ongoing cost for example to capture data
1:24:26for disclosures in the notes to the
1:24:28final statements
1:24:31as far as I remember not that much at
1:24:33least for the one-off transition cost to
1:24:35be honest because uh the IFS9
1:24:38requirements
1:24:40were mostly derived from IS-39.
1:24:44Uh on top of that they were a bit more
1:24:48um economically related to the
1:24:50underlying edging activities
1:24:52than I is 39. Uh there was the suppress
1:24:56of the retrospective efficiency test.
1:25:00Um
1:25:03so one of transition cost not that I
1:25:06remember to be honest not in terms of uh
1:25:09new processes systems and controls not
1:25:11that much um so and and um on the
1:25:16ongoing cost uh in contrast to IS-39 and
1:25:20especially because of the of the or
1:25:22thanks to I don't know whe whether we
1:25:24should say because of or thanks to the
1:25:26suppress of the retrospective efficiency
1:25:28test not that certainly probably less
1:25:31than IS39.
1:25:33So
1:25:36uh
1:25:39I mean it would be interesting to try to
1:25:41see whether it's possible even though it
1:25:43was quite long time ago when we
1:25:45transition to IFS9 age accounting
1:25:47requirements uh whether financial
1:25:49companies or non-financial companies uh
1:25:52to compare the IFS9 cost to IS-39
1:25:58there will be always cost uh uh uh when
1:26:00when implementing edge accounting
1:26:03Uh and so the question is whether IFS9
1:26:06has really increased the cost in
1:26:08contrast to IS39 or reduced the cost
1:26:10even because I I honestly I think it may
1:26:12have reduced the cost. Um so it it would
1:26:16be good to compare 9 with uh of FS9 with
1:26:19IS-39 as it as it were.
1:26:23um
1:26:25and whether this has reduced uh the cost
1:26:27of transition by by aligning closer to
1:26:31to to the economics uh still but still
1:26:34maintaining most of the IS9
1:26:37requirements. So um probably something
1:26:39to explore in the in the phase one just
1:26:42to calibrate to be in a position to
1:26:44calibrate the right question
1:26:47um um
1:26:49uh in the in the request for information
1:26:52Um, still on the cost on the ongoing
1:26:56cost. Yeah, disclosures. There are some
1:26:58disclosures. Honestly, I I I can't
1:27:01believe it's of any usefulness for
1:27:03anyone when you disclose a table with a
1:27:07fair value of your uh FX edging
1:27:10instruments. So, you have a fair value
1:27:12of five, one, two.
1:27:16We are talking in million of euros. I
1:27:19don't see the interest. Yes, there's a
1:27:22requirement there. You disclose that. No
1:27:24problem.
1:27:26I'm not sure it's super uh super
1:27:28meaningful, but uh something to explore
1:27:30probably also. Yeah, the disclosures
1:27:32maybe. And um um a request special
1:27:37request because I was super surprised.
1:27:40Um my treasures, they were at the time,
1:27:43as far as I remember, they were not
1:27:44happy with the suppress of the
1:27:46retrospective efficiency test. for
1:27:48internal control reasons they would have
1:27:50preferred to keep the retrospective
1:27:52efficiency test. Whether that you can
1:27:54click would please me if you were if you
1:27:57were to explore that a bit further up in
1:27:59the phase one uh uh uh of the uh of the
1:28:03uh of the may my special request.
1:28:08[clears throat]
1:28:14>> Thank you Andreas. Thank you Diana and
1:28:16Rihanna. Uh I think that it's it's a
1:28:20good plan. We have to remind people that
1:28:22this is a PI not a project on hedge
1:28:24accounting.
1:28:25>> Yeah. Yeah.
1:28:26>> Yeah.
1:28:26>> Uh and therefore we are not actually if
1:28:30we may propose some change. One thing
1:28:32that I didn't see here comment here here
1:28:35because I think that they are quite
1:28:37related it is the risk mitigation
1:28:39accounting project.
1:28:42uh because for example some that doesn't
1:28:45like very much the the proposal in risk
1:28:48mitigation accounting want to make the
1:28:50hedge and having something 9 hedg in the
1:28:53mini the figurative way not actually to
1:28:56say that okay let me have the two
1:28:58options I have and then uh because we we
1:29:01are proposing in the risk mitigation
1:29:03accounting that a bank it's optional
1:29:06therefore a bank can apply the FS9 and
1:29:09then they may want to make some some
1:29:12suggestion for IFS9 and then I'm just
1:29:14trying to wondering how we are actually
1:29:16articulate this project that we are
1:29:20carrying them together
1:29:23concurrently at the world
1:29:30>> just um on on the RMA point I think we
1:29:35do have both projects have got talking
1:29:37points
1:29:39on this matter because there's there is
1:29:41an overlap and and
1:29:44>> you know even if banks haven't been
1:29:45applying well not you know a lot of
1:29:47banks haven't been applying ISIS 9 they
1:29:49still need to know what's happening in
1:29:50IRS 9 because that might be the only
1:29:52thing so we've got talking points for
1:29:54both projects to talk about the other
1:29:58one without you know taking over the
1:30:00work so that we do make the best of this
1:30:02joint
1:30:04or concurrent um consultation period
1:30:07that we
1:30:14Um I agree with the work plan. I
1:30:16particularly appreciate that the team
1:30:18listened to the feedback we got on the
1:30:20earlier PS where we heard that we were
1:30:23taking up a lot of stakeholder time in
1:30:24phase one and they asked us to slim that
1:30:27down and move it to phase two because
1:30:29phase one is really just about
1:30:31identification of the issues that are
1:30:32going to go into the RFI. And I think
1:30:34what you've outlined is going to do that
1:30:36perfectly.
1:30:42I I also concur with that. I think what
1:30:44is what is really important in this
1:30:45project in particular is the distinction
1:30:47between financial and non-financial
1:30:48companies
1:30:50>> because um there are obviously financial
1:30:52institutions that have already applied
1:30:55if 9. So if I think about Chinese banks
1:30:57for instance they all 9. Um many
1:31:01insurers arguably didn't have a chance
1:31:04but have to apply if 9. Um so but I
1:31:09think the context matters as to what we
1:31:11are getting back. So I think it would be
1:31:13really important that we are in a
1:31:15position to tie any feedback that we are
1:31:17getting either orally or later in
1:31:19writing. Um what type of entity are you
1:31:23and have you applied that or to what to
1:31:25what degree?
1:31:30Anything else?
1:31:32No
1:31:34I will take his line. that if I don't
1:31:37hear anything, this means consent.
1:31:40Excellent. Okay. Thank you very much.
1:31:42With that um we can close today's
1:31:46sessions and we can be tomorrow for
1:31:49another interesting day. Thank you.

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