Reserve Policy

The Reserve Fund exists to protect Members holding positive SILVA balances if Silvatree ever winds down. It is funded by a 1% SILVA accrual on every transaction, paid by the seller alongside the 6% cash commission, and it is structurally subordinated — on Wind-Down the Company's own SILVA is extinguished before any Member is paid.

This document answers the question that funding arrangement raises: how big does the Reserve Fund need to be, and what happens when it gets there?

A reserve that grows without limit is not a prudent reserve. Every SILVA accrued into it is SILVA that leaves circulation and does not come back during the life of the Platform — the Reserve Fund does not trade. Left uncapped, an accrual on every transaction would draw an ever-larger share of the network's SILVA into a fund that never spends it, and Members would collectively owe more and more into something they cannot trade with. A reserve large enough to do its job, and no larger, is the correct size.

So the Reserve Fund has a target band. Above it, the accrual stops. Below it, the accrual resumes.

1. The Coverage Ratio

Everything in this document is expressed as a single figure, the Coverage Ratio:

Coverage Ratio = Reserve Fund balance ÷ total negative SILVA balances across the network

Both figures are read from the Ledger on the Measurement Date, in SILVA, and the ratio is expressed as a percentage rounded to one decimal place.

Why the denominator is negative balances. The risk the Reserve Fund covers is that Members in negative SILVA positions do not settle in full on Wind-Down. Total negative balances are the size of that exposure. Positive balances are the mirror image of the same number and would give a near-identical ratio, but negative balances are the honest description of what is actually at risk.

Why the numerator is the Reserve Fund alone. On Wind-Down the Company gives up more than the Reserve Fund: Clause 30.5(a) extinguishes the whole Company Account — the Operating Account and the Charity Escrow Account as well — so the protection actually standing behind Members is larger than the ratio in this document suggests, and we would rather understate it than overstate it.

The Reserve Fund is measured on its own because it is the part that can be relied on. It is a passive reserve under Clause 31.3(a) and does not trade. The Operating Account is working balance under Clause 32.2(a) — it is spent on procurement and on the Company's own operational needs, so it rises and falls and could be near zero on the day it matters. Setting the threshold that switches a fee off against a balance that can be spent would risk suspending the accrual on the strength of money that is no longer there when it is needed.

2. The target band

The band is set against an expected recovery of approximately 80% of outstanding negative balances on Wind-Down. If four pounds in every five are recovered, the Reserve Fund needs to cover the remaining one — so 20% is the level at which the Fund does its job, and 30% gives headroom above it so that the accrual is not switching on and off month to month.

3. When the accrual is suspended

Where the Coverage Ratio is at or above 30% on a Measurement Date, the 1% SILVA transaction accrual is suspended with effect from the first day of the following month.

Suspension takes effect without notice, because it reduces what Members pay. While it is in force:

• No SILVA accrual is charged on any transaction.
• The 6% cash commission is unaffected and continues to apply.
• VAT is charged on the 6% commission alone, not on a combined 7%, because the SILVA element is not being charged. On a £1,000 trade during suspension the seller pays £60 commission plus £12 VAT — £72 in cash — and no SILVA. The worked example in section 3 of the Fee Schedule describes the position while the accrual is in force.

Suspension does not alter the Reserve Fund's subordination, its role on Wind-Down, or Clause 31.4 absorption of departing Members' negative positions. Those continue unchanged.

4. When the accrual is reinstated

Where the Coverage Ratio falls below 20% on a Measurement Date, the 1% SILVA transaction accrual is reinstated on not less than 30 days' written notice to Members, taking effect from the first day of the month following the expiry of that notice.

Reinstatement increases what Members pay, so it carries notice even though the mechanism is agreed in advance by this document. The notice states the measured Coverage Ratio, the date the accrual resumes, and the reason.

Between 20% and 30%, whatever is currently in force stays in force. This is deliberate: a single threshold would flip the charge on and off around the boundary. The gap between the two thresholds is what makes the charge stable and predictable.

5. Measurement and publication

The Measurement Date is the last calendar day of each month. The Coverage Ratio is read from the Ledger on that date and applies to the following month.

The Coverage Ratio and the Reserve Fund balance are published in Network Health updates under Clause 31.3(b), together with whether the accrual is currently in force. Where the accrual is suspended or reinstated, the change and the ratio that triggered it are published at the same time.

A single Measurement Date does not trigger a change where the ratio has crossed a threshold only because of a one-off event that has since reversed. Where the board is satisfied that is the case, it may defer the change to the following Measurement Date, and the deferral and its reason are published.

6. What the ratio does not do

It does not make the Reserve Fund a guarantee. The Fund is not insurance, not a deposit and not a guarantee fund (Clause 31.6). A Coverage Ratio of 30% does not mean any Member is guaranteed 30% of anything; it means the Fund is the size this policy judges prudent against the network's current exposure.

It is not the whole of the protection. The ratio measures the Reserve Fund only. The Company Account extinguished on Wind-Down under Clause 30.5(a) is larger, and the figure published on our home page shows the combined balance rather than the Fund alone. Where the two are quoted together, this ratio is the conservative one.

The 80% recovery expectation is an estimate, not a promise. It is a planning assumption about how much of the outstanding negative-balance position would be recovered on Wind-Down. Actual recovery could be higher or lower. The board reviews the assumption under section 7 and adjusts the band if experience shows it to be wrong.

Suspension is not a fee reduction that can be relied on. The accrual resumes whenever the Coverage Ratio falls below the lower threshold, which will happen if the network's negative-balance exposure grows or if Clause 31.4 absorptions reduce the Fund.

7. Review of this policy

This policy is reviewed by the board at least annually, alongside the Reserve Fund review required by Clause 31.7, taking into account observed recovery rates on departed Members' negative balances, the distribution of negative balances across the network, and the volume of Clause 31.4 absorptions.

The thresholds in section 2 and the recovery assumption in section 6 may be amended on not less than 30 days' notice under Clause 50. Suspending and reinstating the accrual under sections 3 and 4 is the operation of this policy and is not an amendment to it, and does not require notice beyond the notice section 4 provides for.

8. Relationship to the other documents

Where this policy and the Fee Schedule appear to disagree about whether the accrual is payable, this policy governs. Where they appear to disagree about the rate, the Fee Schedule governs.