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Where an embedded derivative bifurcated from a debtor loan relationship and the embedded derivative is an exactly tracking contract for differences (see below) the underlying a matter of which is shares, subject to certain exceptions which are considered below, any non-trading debits or credits arising to the debtor company in respect of the embedded derivative are ignored in calculating its non-trading debits and credits for the purposes of the derivative contracts legislation¹. This particular provision does not apply where the embedded derivative is an option, which is treated as a contract for differences for the purposes of the derivative contracts legislation because it contains provision for physical settlement, the underlying subject matter of the option is shares and the option falls within the scope of CTA 2009, ss 652–655. See D1.892².

Debits and credits arising on the embedded derivative are not ignored, however, where:

1. Ìý

   (a)ÌýÌýÌýÌý at the time at which the debtor company became a party to the debtor loan relationship it was carrying on