CFM35150 - Loan relationships: connected companies: what is control: financial trader exemption: example

Conditions for the financial trader exemption: example

PF Bank Ltd issues bonds with a face value of £5m. The bonds are listed securities and are placed with its subsidiary, PF Securities Ltd, who is handling the placement of bonds with unconnected investors. It holds the bonds for 2 months while finding buyers.

PF Bank Ltd is a bank. PF Securities Ltd is a securities trader - its trade is buying and selling securities. PF Securities will draw up its accounts on a mark to market basis, and the bonds will be part of its trading stock.

The parties are connected under CTA09/S466, so without the CTA09/S466 exemption PF Securities would have to account for the bonds using the accruals method. However, this is an ordinary commercial arrangement, with PF Securities buying and selling the bonds as part of its trade.

Applying CTA09/S466 PF Securities can continue to account for the debt as trading stock.

PF Bank Ltd, the debtor company is not exempted by section 469 and will therefore use the amortised cost basis when accounting for the securities under the loan relationships rules.