CFM57040 - Derivative contracts: hedging: Disregard Regulations overview

Overview of the Disregard Regulations

The Disregard Regulations have effect for periods of account beginning on or after 1 January 2005. They cover the following circumstances:

• A company uses a liability (Regulation 3) or a derivative contract (Regulation 4) to hedge its net investment in a foreign operation, where that investment takes the form of shares, ships or aircraft. Regulation 5 is supplementary to these. This section of the guidance does not cover Regulations 3 to 5.
• A forecast transaction or firm commitment is hedged by a currency contract (Regulation 7) or a commodity or debt contract (Regulation 8). Regulation 10 sets out how fair value profits or losses that are disregarded under either of these regulations are brought back into account. Guidance is at CFM57080+.
• An interest rate contract hedges an asset, liability, receipt or expense. This is covered by Regulations 9 and 9A (CFM57290+).
• Regulations 11 and 12 are not concerned with hedging, but with transitional provisions relating to convertible and asset-linked securities.

A company may elect out of the operation of Regulations 7 and 8; or it may elect for Regulation 9A to apply instead of Regulations 7 and 8.

Separately, it may elect out of Regulation 9 for certain hedges.

Provisions for elections are contained in Regulation 6.

Regulation 2 contains various definitions.