Legalize / European Union / Regulation

Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 Text with EEA relevance

Type Regulation

Publication 2013-06-26

Last updated 2026-06-26

State In force

Department Council of the European Union, European Parliament

Source EUR-Lex

articles 737

Reform history JSON API

(h) where the review is performed by a third-party undertaking in accordance with point (h) of paragraph 1 of this Article, the verification that the internal validation process set out in Article 325bj fulfils its objectives.

Article 325bj

Internal validation

Institutions shall conduct the validation referred to in paragraph 1 in the following circumstances:

(a) when any internal risk-measurement model is initially developed and when any significant changes are made to that model;

(b) on a periodic basis, and where there have been significant structural changes in the market or changes to the composition of the portfolio which might lead to the internal risk-measurement model no longer being adequate.

The validation of the internal risk-measurement models of an institution shall not be limited to back-testing and P&L attribution requirements, but shall, at a minimum, include the following:

(a) tests to verify whether the assumptions made in the internal model are appropriate and do not underestimate or overestimate the risk;

(b) own internal model validation tests, including back-testing in addition to the regulatory back-testing programmes, in relation to the risks and structures of their portfolios;

(c) the use of hypothetical portfolios to ensure that the internal risk-measurement model is able to account for particular structural features that may arise, for example, material basis risks and concentration risk, or the risks associated with the use of proxies.

Article 325bk

Calculation of stress scenario risk measure

EBA shall develop draft regulatory technical standards to specify:

(a) how institutions are to develop extreme scenarios of future shock applicable to non-modellable risk factors and how they are to apply those extreme scenarios of future shock to those risk factors;

(b) a regulatory extreme scenario of future shock for each broad sub-category of risk factors listed in Table 2 of Article 325bd, which institutions may use when they are unable to develop an extreme scenario of future shock in accordance with point (a) of this subparagraph, or which competent authorities may require that institution apply if those authorities are not satisfied with the extreme scenario of future shock developed by the institution;

(c) the circumstances under which institutions may calculate a stress scenario risk measure for more than one non-modellable risk factor;

(d) how institutions are to aggregate the stress scenario risk measures of all non-modellable risk factors included in their trading book positions and non-trading book positions that are subject to foreign exchange risk or commodity risk.

In developing those draft regulatory technical standards, EBA shall take into consideration the requirement that the level of own funds requirements for market risk of a non-modellable risk factor as set out in this Article shall be as high as the level of own funds requirements for market risk that would have been calculated under this Chapter if that risk factor were modellable.

EBA shall submit those draft regulatory technical standards to the Commission by 28 September 2020.

Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Section 3

Internal default risk model

Article 325bl

Scope of the internal default risk model

Article 325bm

Permission to use an internal default risk model

Article 325bn

Own funds requirements for default risk using an internal default risk model

Institutions shall calculate the own funds requirements for default risk using an internal default risk model for the portfolio of all trading book positions as referred to in Article 325bl as follows:

(a) the own funds requirements shall be equal to a value-at-risk number measuring potential losses in the market value of the portfolio caused by the default of issuers related to those positions at the 99,9 % confidence interval over a one-year time horizon;

(b) the potential loss referred to in point (a) means a direct or indirect loss in the market value of a position which was caused by the default of the issuers and which is incremental to any losses already taken into account in the current valuation of the position; the default of the issuers of equity positions shall be represented by the value for the issuers' equity prices being set to zero;

(c) institutions shall determine default correlations between different issuers on the basis of a conceptually sound methodology, using objective historical data on market credit spreads or equity prices that cover at least a 10 year period that includes the stress period identified by the institution in accordance with Article 325bc(2); the calculation of default correlations between different issuers shall be calibrated to a one-year time horizon;

(d) the internal default risk model shall be based on a one-year constant position assumption.

Article 325bo

Recognition of hedges in an internal default risk model

Institutions shall ensure that maturity mismatches between a hedging instrument and the hedged instrument that could occur during the one-year time horizon, where those mismatches are not captured in their internal default risk model, do not lead to a material underestimation of risk.

Institutions shall recognise a hedging instrument only to the extent that it can be maintained even as the obligor approaches a credit event or other event.

Article 325bp

Particular requirements for an internal default risk model

To simulate the default of issuers in the internal default risk model, the institution's estimates of default probabilities shall meet the following requirements:

(a) the default probabilities shall be floored at 0,01 % for exposures to which a 0 % risk weight is applied in accordance with Articles 114 to 118 and at 0,01 % for covered bonds to which a 10 % risk weight is applied in accordance with Article 129; otherwise, the default probabilities shall be floored at 0,03 %;

(b) the default probabilities shall be based on a one-year time horizon, unless stated otherwise in this Section;

(c) the default probabilities shall be measured using, solely or in combination with current market prices, data observed during a historical period of at least five years of actual past defaults and extreme declines in market prices equivalent to default events; default probabilities shall not be inferred solely from current market prices;

(d) an institution that has been granted permission to estimate default probabilities in accordance with Title II, Chapter 3, Section 1 for the exposure class and the rating system corresponding to a given issuer shall use the methodology set out therein to calculate the default probabilities of that issuer, provided that the data to make such an estimate are available;

(e) an institution that has not been granted permission to estimate default probabilities referred to in point (d) shall develop an internal methodology or use external sources to estimate these default probabilities consistently with the requirements applicable to estimates of default probability under this Article.

For the purposes of the first subparagraph, point (d), the data to estimate the default probabilities of a given issuer of a trading book position are available where, at the calculation date, the institution has a non-trading book position on the same obligor for which it estimates default probabilities in accordance with Title II, Chapter 3, Section 1 to calculate its own funds requirements set out in that Chapter.

To simulate the default of issuers in the internal default risk model, the institution's estimates of loss given default shall meet the following requirements:

(a) the loss given default estimates are floored at 0 %;

(b) the loss given default estimates shall reflect the seniority of each position;

(c) an institution that has been granted permission to estimate LGD in accordance with Title II, Chapter 3, Section 1, for the exposure class and the rating system corresponding to a given exposure shall use the methodology set out therein to calculate LGD estimates of that issuer, provided that the data to make such an estimate are available;

(d) an institution that has not been granted permission to estimate LGD referred to in point (c) shall develop an internal methodology or use external sources to estimate LGD consistently with the requirements applying to estimates of LGD under this Article.

For the purposes of the first subparagraph, point (c), the data to estimate the LGD of a given issuer of a trading book position are available where, at the calculation date, the institution has a non-trading book position on the same exposure for which it estimates LGD in accordance with Title II, Chapter 3, Section 1 to calculate its own funds requirements set out in that Chapter.

As part of the independent review and validation of the internal models that they use for the purposes of this Chapter, including for the risk-measurement system, institutions shall:

(a) verify that their approach for the modelling of correlations and price changes is appropriate for their portfolio, including the choice and weights of the systematic risk factors in the model;

(b) perform a variety of stress tests, including sensitivity analyses and scenario analyses, to assess the qualitative and quantitative reasonableness of the internal default risk model, in particular with regard to the treatment of concentrations; and

The tests referred to in point (b) shall not be limited to the range of past events experienced.

EBA shall submit those draft regulatory technical standards to the Commission by 28 September 2020.

CHAPTER 2

Own funds requirements for position risk

Section 1

General provisions and specific instruments

Article 326

Own funds requirements for position risk

The institution's own funds requirement for position risk shall be the sum of the own funds requirements for the general and specific risk of its positions in debt and equity instruments. Securitisation positions in the trading book shall be treated as debt instruments.

Article 327

Netting

Article 328

Interest rate futures and forwards

Article 329

Options and warrants

EBA shall submit those draft regulatory technical standards to the Commission by 31 December 2013.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Article 330

Swaps

Swaps shall be treated for interest-rate risk purposes on the same basis as on-balance-sheet instruments. Thus, an interest-rate swap under which an institution receives floating-rate interest and pays fixed-rate interest shall be treated as equivalent to a long position in a floating-rate instrument of maturity equivalent to the period until the next interest fixing and a short position in a fixed-rate instrument with the same maturity as the swap itself.

Article 331

Interest rate risk on derivative instruments

Institutions which do not use models under paragraph 1 may, treat as fully offsetting any positions in derivative instruments covered in Articles 328 to 330 which meet the following conditions at least:

(a) the positions are of the same value and denominated in the same currency;

(b) the reference rate (for floating-rate positions) or coupon (for fixed-rate positions) is closely matched;

(c) the next interest-fixing date or, for fixed coupon positions, residual maturity corresponds with the following limits: (i) less than one month hence: same day; (ii) between one month and one year hence: within seven days; (iii) over one year hence: within 30 days.

Article 332

Credit Derivatives

When calculating the own funds requirement for general and specific risk of the party who assumes the credit risk (the ‘protection seller’), unless specified differently, the notional amount of the credit derivative contract shall be used. Notwithstanding the first sentence, the institution may elect to replace the notional value by the notional value plus the net market value change of the credit derivative since trade inception, a net downward change from the protection seller's perspective carrying a negative sign. For the purpose of calculating the specific risk charge, other than for total return swaps, the maturity of the credit derivative contract, rather than the maturity of the obligation, shall apply. Positions are determined as follows:

(a) a total return swap creates a long position in the general risk of the reference obligation and a short position in the general risk of a government bond with a maturity equivalent to the period until the next interest fixing and which is assigned a 0 % risk weight under Title II, Chapter 2. It also creates a long position in the specific risk of the reference obligation;

(b) a credit default swap does not create a position for general risk. For the purposes of specific risk, the institution shall record a synthetic long position in an obligation of the reference entity, unless the derivative is rated externally and meets the conditions for a qualifying debt item, in which case a long position in the derivative is recorded. If premium or interest payments are due under the product, these cash flows shall be represented as notional positions in government bonds;

(c) a single name credit linked note creates a long position in the general risk of the note itself, as an interest rate product. For the purpose of specific risk, a synthetic long position is created in an obligation of the reference entity. An additional long position is created in the issuer of the note. Where the credit linked note has an external rating and meets the conditions for a qualifying debt item, a single long position with the specific risk of the note need only be recorded;

(d) in addition to a long position in the specific risk of the issuer of the note, a multiple name credit linked note providing proportional protection creates a position in each reference entity, with the total notional amount of the contract assigned across the positions according to the proportion of the total notional amount that each exposure to a reference entity represents. Where more than one obligation of a reference entity can be selected, the obligation with the highest risk weighting determines the specific risk;

(e) a first-asset-to-default credit derivative creates a position for the notional amount in an obligation of each reference entity. If the size of the maximum credit event payment is lower than the own funds requirement under the method in the first sentence of this point, the maximum payment amount may be taken as the own funds requirement for specific risk.

A -n-th-asset-to-default credit derivative creates a position for the notional amount in an obligation of each reference entity less the n-1 reference entities with the lowest specific risk own funds requirement. If the size of the maximum credit event payment is lower than the own funds requirement under the method in the first sentence of this point, this amount may be taken as the own funds requirement for specific risk.

Where an n-th-to-default credit derivative is externally rated, the protection seller shall calculate the specific risk own funds requirement using the rating of the derivative and apply the respective securitisation risk weights as applicable.

Article 333

Securities sold under a repurchase agreement or lent

The transferor of securities or guaranteed rights relating to title to securities in a repurchase agreement and the lender of securities in a securities lending shall include these securities in the calculation of its own funds requirement under this Chapter provided that such securities are trading book positions.

Section 2

Debt instruments

Article 334

Net positions in debt instruments

Net positions shall be classified according to the currency in which they are denominated and shall calculate the own funds requirement for general and specific risk in each individual currency separately.

Sub-Section 1

Specific risk

Article 335

Cap on the own funds requirement for a net position

The institution may cap the own funds requirement for specific risk of a net position in a debt instrument at the maximum possible default-risk related loss. For a short position, that limit may be calculated as a change in value due to the instrument or, where relevant, the underlying names immediately becoming default risk-free.

Article 336

Own funds requirement for non-securitisation debt instruments

The institution shall assign its net positions in the trading book in instruments that are not securitisation positions as calculated in accordance with Article 327 to the appropriate categories in Table 1 on the basis of their issuer or obligor, external or internal credit assessment, and residual maturity, and then multiply them by the weightings shown in that table. It shall sum its weighted positions resulting from the application of this Article regardless of whether they are long or short in order to calculate its own funds requirement against specific risk.

Categories	Specific risk own funds requirement
Debt securities which would receive a 0 % risk weight under the Standardised Approach for credit risk.	0 %
Debt securities which would receive a 20 % or 50 % risk weight under the Standardised Approach for credit risk and other qualifying items as defined in paragraph 4.	0,25 % (residual term to final maturity six months or less) 1,00 % (residual term to final maturity greater than six months and up to and including 24 months) 1,60 % (residual term to maturity exceeding 24 months)
Debt securities which would receive a 100 % risk weight under the Standardised Approach for credit risk.	8,00 %
Debt which would receive a 150 % risk weight under the Standardised Approach for credit risk.	12,00 %

Other qualifying items are:

(a) long and short positions in assets for which a credit assessment by a nominated ECAI is not available and which meet all of the following conditions: (i) they are considered by the institution concerned to be sufficiently liquid; (ii) their investment quality is, according to the institution's own discretion, at least equivalent to that of the assets referred to under Table 1 second row; (iii) they are listed on at least one regulated market in a Member State or on a stock exchange in a third country provided that the exchange is recognised by the competent authorities of the relevant Member State;

(b) long and short positions in assets issued by institutions subject to the own funds requirements set out in this Regulation which are considered by the institution concerned to be sufficiently liquid and whose investment quality is, according to the institution's own discretion, at least equivalent to that of the assets referred to under Table 1 second row;

(c) securities issued by institutions that are deemed to be of equivalent, or higher, credit quality than those associated with credit quality step 2 under the Standardised Approach for credit risk of exposures to institutions and that are subject to supervisory and regulatory arrangements comparable to those under this Regulation and Directive 2013/36/EU.

Institutions that make use of point (a) or (b) shall have a documented methodology in place to assess whether assets meet the requirements in those points and shall notify this methodology to the competent authorities.

Article 337

Own funds requirement for securitisation instruments

Where an originator institution of a synthetic securitisation does not meet the conditions for significant risk transfer set out in Article 245, the originator institution shall include the exposures underlying the securitisation in its calculation of own funds requirements as if those exposures had not been securitised and shall ignore the effect of the synthetic securitisation for credit protection purposes.

Article 338

Own funds requirement for the correlation trading portfolio

An institution shall determine the larger of the following amounts as the specific risk own funds requirement for the correlation trading portfolio:

(a) the total specific risk own funds requirement that would apply just to the net long positions of the correlation trading portfolio;

(b) the total specific risk own funds requirement that would apply just to the net short positions of the correlation trading portfolio.

Sub-Section 2

General risk

Article 339

Maturity-based calculation of general risk

The institution shall compute the totals of the unmatched weighted long positions for the bands included in each of the zones in Table 2 in order to derive the unmatched weighted long position for each zone. Similarly, the sum of the unmatched weighted short positions for each band in a particular zone shall be summed to compute the unmatched weighted short position for that zone. That part of the unmatched weighted long position for a given zone that is matched by the unmatched weighted short position for the same zone shall be the matched weighted position for that zone. That part of the unmatched weighted long or unmatched weighted short position for a zone that cannot be thus matched shall be the unmatched weighted position for that zone.

Zone	Maturity band	Weighting (in %)	Assumed interest rate change (in %)
Coupon of 3 % or more	Coupon of less than 3 %
One	0 ≤ 1 month	0 ≤ 1 month	0,00	—
> 1 ≤ 3 months	> 1 ≤ 3 months	0,20	1,00
> 3 ≤ 6 months	> 3 ≤ 6 months	0,40	1,00
> 6 ≤ 12 months	> 6 ≤ 12 months	0,70	1,00
Two	> 1 ≤ 2 years	> 1,0 ≤ 1,9 years	1,25	0,90
> 2 ≤ 3 years	> 1,9 ≤ 2,8 years	1,75	0,80
> 3 ≤ 4 years	> 2,8 ≤ 3,6 years	2,25	0,75
Three	> 4 ≤ 5 years	> 3,6 ≤ 4,3 years	2,75	0,75
> 5 ≤ 7 years	> 4,3 ≤ 5,7 years	3,25	0,70
> 7 ≤ 10 years	> 5,7 ≤ 7,3 years	3,75	0,65
> 10 ≤ 15 years	> 7,3 ≤ 9,3 years	4,50	0,60
> 15 ≤ 20 years	> 9,3 ≤ 10,6 years	5,25	0,60
> 20 years	> 10,6 ≤ 12,0 years	6,00	0,60
	> 12,0 ≤ 20,0 years	8,00	0,60
	> 20 years	12,50	0,60

The institution's own funds requirement shall be calculated as the sum of:

(a) 10 % of the sum of the matched weighted positions in all maturity bands;

(b) 40 % of the matched weighted position in zone one;

(d) 30 % of the matched weighted position in zone three;

(e) 40 % of the matched weighted position between zones one and two and between zones two and three;

(f) 150 % of the matched weighted position between zones one and three;

(g) 100 % of the residual unmatched weighted positions.

Article 340

Duration-based calculation of general risk

The institution shall then calculate the modified duration of each debt instrument on the basis of the following formula:

where:

Correction shall be made to the calculation of the modified duration for debt instruments which are subject to prepayment risk. EBA shall, in accordance with Article 16 of Regulation (EU) No 1093/2010, issue guidelines about how to apply such corrections.

The institution shall then allocate each debt instrument to the appropriate zone in Table 3. It shall do so on the basis of the modified duration of each instrument.

Zone	Modified duration (in years)	Assumed interest (change in %)
One	> 0 ≤ 1,0	1,0
Two	> 1,0 ≤ 3,6	0,85
Three	> 3,6	0,7

The institution shall then calculate the unmatched duration-weighted positions for each zone. It shall then follow the procedures laid down for unmatched weighted positions in Article 339(5) to (8).

The institution's own funds requirement shall then be calculated as the sum of the following:

(a) 2 % of the matched duration-weighted position for each zone;

(b) 40 % of the matched duration-weighted positions between zones one and two and between zones two and three;

(d) 100 % of the residual unmatched duration-weighted positions.

Section 3

Equities

Article 341

Net positions in equity instruments

EBA shall submit those draft regulatory technical standards to the Commission by 31 January 2014.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Article 342

Specific risk of equity instruments

The institution shall multiply its overall gross position by 8 % in order to calculate its own funds requirement against specific risk.

Article 343

General risk of equity instruments

The own funds requirement against general risk shall be the institution's overall net position multiplied by 8 %.

Article 344

Stock indices

EBA shall submit those draft implementing technical standards to the Commission by 1 January 2014.

Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010.

Section 4

Underwriting

Article 345

Reduction of net positions

In the case of the underwriting of debt and equity instruments, an institution may use the following procedure in calculating its own funds requirements. The institution shall first calculate the net positions by deducting the underwriting positions which are subscribed or sub-underwritten by third parties on the basis of formal agreements. The institution shall then reduce the net positions by the reduction factors in Table 4 and calculate its own funds requirements using the reduced underwriting positions.

working day 0:	100 %
working day 1:	90 %
working days 2 to 3:	75 %
working day 4:	50 %
working day 5:	25 %
after working day 5:	0 %.

‘Working day zero’ shall be the working day on which the institution becomes unconditionally committed to accepting a known quantity of securities at an agreed price.

Section 5

Specific risk own funds requirements for positions hedged by credit derivatives

Article 346

Allowance for hedges by credit derivatives

Full allowance shall be given when the values of the two legs always move in the opposite direction and broadly to the same extent. This will be the case in the following situations:

(a) the two legs consist of completely identical instruments;

(b) a long cash position is hedged by a total rate of return swap (or vice versa) and there is an exact match between the reference obligation and the underlying exposure (i.e., the cash position). The maturity of the swap itself may be different from that of the underlying exposure.

In these situations, a specific risk own funds requirement shall not be applied to either side of the position.

Partial allowance shall be given, absent the situations in paragraphs 3 and 4, in the following situations:

(a) the position falls under paragraph 3(b) but there is an asset mismatch between the reference obligation and the underlying exposure. However, the positions meet the following requirements: (i) the reference obligation ranks pari passu with or is junior to the underlying obligation; (ii) the underlying obligation and reference obligation share the same obligor and have legally enforceable cross-default or cross-acceleration clauses;

(b) the position falls under paragraph 3(a) or paragraph 4 but there is a currency or maturity mismatch between the credit protection and the underlying asset. Such currency mismatch shall be included in the own funds requirement for foreign exchange risk;

(c) the position falls under paragraph 4 but there is an asset mismatch between the cash position and the credit derivative. However, the underlying asset is included in the (deliverable) obligations in the credit derivative documentation.

In order to give partial allowance, rather than adding the specific risk own funds requirements for each side of the transaction, only the higher of the two own funds requirements shall apply.

Article 347

Allowance for hedges by first and nth-to default credit derivatives

In the case of first-to-default credit derivatives and nth-to-default credit derivatives, the following treatment applies for the allowance to be given in accordance with Article 346:

(a) where an institution obtains credit protection for a number of reference entities underlying a credit derivative under the terms that the first default among the assets shall trigger payment and that this credit event shall terminate the contract, the institution may offset specific risk for the reference entity to which the lowest specific risk percentage charge among the underlying reference entities applies in accordance with Table 1 in Article 336;

(b) where the nth default among the exposures triggers payment under the credit protection, the protection buyer may only offset specific risk if protection has also been obtained for defaults 1 to n-1 or when n-1 defaults have already occurred. In such cases, the methodology set out in point (a) for first-to-default credit derivatives shall be followed appropriately amended for nth-to-default products.

Section 6

Own funds requirements for CIUs

Article 348

Own funds requirements for CIUs

Article 349

General criteria for CIUs

CIUs shall be eligible for the approach set out in Article 350, where all the following conditions are met:

(a) the CIU's prospectus or equivalent document shall include all of the following: (i) the categories of assets in which the CIU is authorised to invest; (ii) where investment limits apply, the relative limits and the methodologies to calculate them; (iii) where leverage is allowed, the maximum level of leverage; (iv) where concluding OTC financial derivatives transactions or repurchase transactions or securities borrowing or lending is allowed, a policy to limit counterparty risk arising from these transactions;

(b) the business of the CIU shall be reported in half-yearly and annual reports to enable an assessment to be made of the assets and liabilities, income and operations over the reporting period;

(c) the shares or units of the CIU shall be redeemable in cash, out of the undertaking's assets, on a daily basis at the request of the unit holder;

(d) investments in the CIU shall be segregated from the assets of the CIU manager;

(e) there shall be adequate risk assessment of the CIU, by the investing institution;

(f) CIUs shall be managed by persons supervised in accordance with Directive 2009/65/EC or equivalent legislation.

Article 350

Specific methods for CIUs

Institutions may calculate the own funds requirements for position risk, comprising specific and general risk, for positions in CIUs by assuming positions representing those necessary to replicate the composition and performance of the externally generated index or fixed basket of equities or debt securities referred to in point (a), subject to the following conditions:

(a) the purpose of the CIU's mandate is to replicate the composition and performance of an externally generated index or fixed basket of equities or debt securities;

(b) a minimum correlation coefficient between daily returns on the CIU and the index or basket of equities or debt securities it tracks of 0,9 can be clearly established over a minimum period of six months.

Where the institution is not aware of the underlying investments of the CIU on a daily basis, the institution may calculate the own funds requirements for position risk, comprising specific and general risk, subject to the following conditions:

(a) it will be assumed that the CIU first invests to the maximum extent allowed under its mandate in the asset classes attracting the highest own funds requirement for specific and general risk separately, and then continues making investments in descending order until the maximum total investment limit is reached. The position in the CIU will be treated as a direct holding in the assumed position;

(b) institutions shall take account of the maximum indirect exposure that they could achieve by taking leveraged positions through the CIU when calculating their own funds requirement for specific and general risk separately, by proportionally increasing the position in the CIU up to the maximum exposure to the underlying investment items resulting from the mandate;

(c) if the own funds requirement for specific and general risk together in accordance with this paragraph exceed that set out in Article 348(1) the own funds requirement shall be capped at that level.

Institutions may rely on the following third parties to calculate and report own funds requirements for position risk for positions in CIUs falling under paragraphs 1 to 4, in accordance with the methods set out in this Chapter:

(a) the depository of the CIU provided that the CIU exclusively invests in securities and deposits all securities at this depository;

(b) for other CIUs, the CIU management company, provided that the CIU management company meets the criteria set out in Article 132(3)(a).

The correctness of the calculation shall be confirmed by an external auditor.

CHAPTER 3

Own funds requirements for foreign-exchange risk

Article 351

De minimis and weighting for foreign exchange risk

If the sum of an institution’s overall net foreign exchange position and its net gold position, calculated in accordance with the procedure set out in Article 352, exceeds 2 % of its total own funds, the institution shall calculate an own funds requirement for foreign exchange risk. The own funds requirement for foreign exchange risk shall be the sum of its overall net foreign exchange position and its net gold position in the reporting currency, multiplied by 8 %.

Article 352

Calculation of the overall net foreign exchange position

The institution's net open position in each currency (including the reporting currency) and in gold shall be calculated as the sum of the following elements (positive or negative):

(a) the net spot position (i.e. all asset items less all liability items, including accrued interest, in the currency in question or, for gold, the net spot position in gold);

(b) the net forward position, which are all amounts to be received less all amounts to be paid under forward exchange and gold transactions, including currency and gold futures and the principal on currency swaps not included in the spot position;

(d) the net delta, or delta-based, equivalent of the total book of foreign-currency and gold options;

(e) the market value of other options.

The delta used for purposes of point (d) shall be that of the exchange concerned. For OTC options, or where delta is not available from the exchange concerned, the institution may calculate delta itself using an appropriate model, subject to permission by the competent authorities. Permission shall be granted if the model appropriately estimates the rate of change of the option's or warrant's value with respect to small changes in the market price of the underlying.

The institution may include net future income/expenses not yet accrued but already fully hedged if it does so consistently.

The institution may break down net positions in composite currencies into the component currencies in accordance with the quotas in force.

EBA shall submit those draft regulatory technical standards to the Commission by 31 December 2013.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Before the entry into force of the technical standards referred to in the first subparagraph, competent authorities may continue to apply the existing national treatments, where the competent authorities have applied those treatments before 31 December 2013.

Article 353

Foreign exchange risk of CIUs

Institutions may rely on the following third parties' reporting of the foreign exchange positions in the CIU:

(a) the depository institution of the CIU provided that the CIU exclusively invests in securities and deposits all securities at this depository institution;

(b) for other CIUs, the CIU management company, provided that the CIU management company meets the criteria set out in point (a) of Article 132(3).

The correctness of the calculation shall be confirmed by an external auditor.

Article 354

Closely correlated currencies

EBA shall submit those draft implementing technical standards to the Commission by 1 January 2014.

Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010.

CHAPTER 4

Own funds requirements for commodities risk

Article 355

Choice of method for commodities risk

Subject to Articles 356 to 358, institutions shall calculate the own funds requirement for commodities risk with one of the methods set out in Article 359, 360 or 361.

Article 356

Ancillary commodities business

Institutions with ancillary agricultural commodities business may determine the own funds requirements for their physical commodity stock at the end of each year for the following year where all of the following conditions are met:

(a) at any time of the year it holds own funds for this risk which are not lower than the average own funds requirement for that risk estimated on a conservative basis for the coming year;

(b) it estimates on a conservative basis the expected volatility for the figure calculated under point (a);

(c) its average own funds requirement for this risk does not exceed 5 % of its own funds or EUR 1 million and, taking into account the volatility estimated in accordance with (b), the expected peak own funds requirements do not exceed 6,5 % of its own funds;

(d) the institution monitors on an ongoing basis whether the estimates carried out under points (a) and (b) still reflect the reality.

Article 357

Positions in commodities

For the purposes of calculating a position in a commodity, the following positions shall be treated as positions in the same commodity:

(a) positions in different sub-categories of commodities in cases where the sub-categories are deliverable against each other;

(b) positions in similar commodities if they are close substitutes and where a minimum correlation of 0,9 between price movements can be clearly established over a minimum period of one year.

Article 358

Particular instruments

Institutions shall adequately reflect other risks associated with options, apart from the delta risk, in the own funds requirements.

EBA shall submit those draft regulatory technical standards to the Commission by 31 December 2013.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Where an institution is either of the following, it shall include the commodities concerned in the calculation of its own funds requirement for commodities risk:

(a) the transferor of commodities or guaranteed rights relating to title to commodities in a repurchase agreement;

(b) the lender of commodities in a commodities lending agreement.

Article 359

Maturity ladder approach

The institution shall use a separate maturity ladder in line with Table 1 for each commodity. All positions in that commodity shall be assigned to the appropriate maturity bands. Physical stocks shall be assigned to the first maturity band between 0 and up to and including 1 month.

Maturity band (1)	Spread rate (in %) (2)
0 ≤ 1 month	1,50
> 1 ≤ 3 months	1,50
> 3 ≤ 6 months	1,50
> 6 ≤ 12 months	1,50
> 1 ≤ 2 years	1,50
> 2 ≤ 3 years	1,50
> 3 years	1,50

Positions in the same commodity may be offset and assigned to the appropriate maturity bands on a net basis for the following:

(a) positions in contracts maturing on the same date;

(b) positions in contracts maturing within 10 days of each other if the contracts are traded on markets which have daily delivery dates.

The institution's own funds requirement for each commodity shall be calculated on the basis of the relevant maturity ladder as the sum of the following:

(a) the sum of the matched long and short positions, multiplied by the appropriate spread rate as indicated in the second column of Table 1 for each maturity band and by the spot price for the commodity;

(b) the matched position between two maturity bands for each maturity band into which an unmatched position is carried forward, multiplied by 0,6 %, which is the carry rate and by the spot price for the commodity;

(c) the residual unmatched positions, multiplied by 15 % which is the outright rate and by the spot price for the commodity.

Article 360

Simplified approach

The institution's own funds requirement for each commodity shall be calculated as the sum of the following:

(a) 15 % of the net position, long or short, multiplied by the spot price for the commodity;

(b) 3 % of the gross position, long plus short, multiplied by the spot price for the commodity.

Article 361

Extended maturity ladder approach

Institutions may use the minimum spread, carry and outright rates set out in the following Table 2 instead of those indicated in Article 359 provided that the institutions:

(a) undertake significant commodities business;

(b) have an appropriately diversified commodities portfolio.

	Precious metals (except gold)	Base metals	Agricultural products (softs)	Other, including energy products
Spread rate (%)	1,0	1,2	1,5	1,5
Carry rate (%)	0,3	0,5	0,6	0,6
Outright rate (%)	8	10	12	15

Institutions shall notify the use they make of this Article to their competent authorities.

TITLE V

OWN FUNDS REQUIREMENTS FOR SETTLEMENT RISK

Article 378

Settlement/delivery risk

In the case of transactions in which debt instruments, equities, foreign currencies and commodities excluding repurchase transactions and securities or commodities lending and securities or commodities borrowing are unsettled after their due delivery dates, an institution shall calculate the price difference to which it is exposed.

The price difference is calculated as the difference between the agreed settlement price for the debt instrument, equity, foreign currency or commodity in question and its current market value, where the difference could involve a loss for the credit institution.

The institution shall multiply that price difference by the appropriate factor in the right column of the following Table 1 in order to calculate the institution's own funds requirement for settlement risk.

Number of working days after due settlement date	(%)
5 — 15	8
16 — 30	50
31 — 45	75
46 or more	100

Article 379

Free deliveries

An institution shall be required to hold own funds, as set out in Table 2, where the following occurs:

(a) it has paid for securities, foreign currencies or commodities before receiving them or it has delivered securities, foreign currencies or commodities before receiving payment for them;

(b) in the case of cross-border transactions, one day or more has elapsed since it made that payment or delivery.

Column 1	Column 2	Column 3	Column 4
Transaction Type	Up to first contractual payment or delivery leg	From first contractual payment or delivery leg up to four days after second contractual payment or delivery leg	From 5 business days post second contractual payment or delivery leg until extinction of the transaction
Free delivery	No capital charge	Treat as an exposure	Treat as an exposure risk weighted at 1 250 %

If the amount of positive exposure resulting from free delivery transactions is not material, institutions may apply a risk weight of 100 % to these exposures, except where a risk weight of 1 250 % in accordance with Column 4 of Table 2 in paragraph 1 is required.

Article 380

Waiver

Where a system wide failure of a settlement system, a clearing system or a CCP occurs, competent authorities may waive the own funds requirements calculated as set out in Articles 378 and 379 until the situation is rectified. In this case, the failure of a counterparty to settle a trade shall not be deemed a default for purposes of credit risk.

TITLE VI

OWN FUNDS REQUIREMENTS FOR CREDIT VALUATION ADJUSTMENT RISK

Article 381

Meaning of credit valuation adjustment

For the purposes of this Title and Chapter 6 of Title II, ‘credit valuation adjustment’ or ‘CVA’ means an adjustment to the mid-market valuation of the portfolio of transactions with a counterparty. That adjustment reflects the current market value of the credit risk of the counterparty to the institution, but does not reflect the current market value of the credit risk of the institution to the counterparty.

For the purposes of this Title, ‘CVA risk’ means the risk of losses arising from changes in the value of CVA, calculated for the portfolio of transactions with a counterparty as set out in the first paragraph, due to movements in counterparty credit spread risk factors and in other risk factors embedded in the portfolio of transactions.

Article 382

Scope

The following transactions shall be excluded from the own funds requirements for CVA risk:

(a) transactions with non-financial counterparties as defined in point (9) of Article 2 of Regulation (EU) No 648/2012, or with non-financial counterparties established in a third country, where those transactions do not exceed the clearing threshold as specified in Article 10(3) and (4) of that Regulation;

(aa) intragroup transactions entered into with non-financial counterparties as defined in Article 2, point (9), of Regulation (EU) No 648/2012 which are part of the same group provided that all the following conditions are met: (i) the institution and the non-financial counterparties are included in the same consolidation on a full basis and are subject to supervision on a consolidated basis in accordance with Part One, Title II, Chapter 2; (ii) they are subject to appropriate centralised risk evaluation, measurement and control procedures; and (iii) the non-financial counterparties are established in the Union or, if they are established in a third country, the Commission has adopted an implementing act in accordance with paragraph 4c in respect of that third country;

(b) intragroup transactions entered into with financial counterparties, as defined in Article 2, point (8), of Regulation (EU) No 648/2012, financial institutions or ancillary services undertakings that are established in the Union or that are established in a third country that applies prudential and supervisory requirements to those financial counterparties, financial institutions or ancillary services undertakings that are at least equivalent to those applied in the Union, unless Member States adopt national law requiring the structural separation within a banking group, in which case the competent authorities may require those intragroup transactions between the structurally separated entities to be included in the own funds requirements;

(c) transactions with counterparties referred to in point (10) of Article 2 of Regulation (EU) No 648/2012 and subject to the transitional provisions set out in Article 89(1) of that Regulation until those transitional provisions cease to apply;

(d) transactions with counterparties referred to in Article 1(4) and (5) of Regulation (EU) No 648/2012 and transactions with counterparties for which Article 114(4) and Article 115(2) of this Regulation specifies a risk weight of 0 % for exposures to those counterparties.

The exemption from the CVA risk charge for those transactions referred to in point (c) of this paragraph) which are entered into during the transitional period laid down in Article 89(1) of Regulation (EU) No 648/2012 shall apply for the length of the contract of that transaction.

In regard to point (a), where an institution ceases to be exempt through crossing the exemption threshold or due to a change in the exemption threshold, outstanding contracts shall remain exempt until the date of their maturity.

EBA in cooperation with ESMA shall develop draft regulatory technical standards to specify the procedures for excluding transactions with non-financial counterparties established in a third country from the own funds requirement for CVA risk charge.

EBA shall submit those draft regulatory technical standards within six months of the date of the review referred to in the first subparagraph,

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the second subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2026.

Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Article 382a

Approaches for calculating the own funds requirements for CVA risk

An institution shall calculate the own funds requirements for CVA risk for all transactions referred to in Article 382 in accordance with the following approaches:

(a) the standardised approach set out in Article 383, where the institution has been granted permission by the competent authority to use that approach;

(b) the basic approach set out in Article 384;

(c) the simplified approach set out in Article 385, provided that the institution meets the conditions set out in paragraph 1 of that Article.

An institution may use a combination of the approaches referred to in paragraph 1, points (a) and (b), to calculate the own funds requirements for CVA risk on a permanent basis for:

(a) different counterparties;

(b) different eligible netting sets with the same counterparty;

(c) different transactions of the same eligible netting set, provided that any of the conditions referred to in paragraph 5 are satisfied.

For the purposes of paragraph 3, point (c), the conditions referred to therein shall comprise the following:

(a) the split is consistent with the treatment of the legal netting set when calculating the CVA for accounting purposes;

(b) the permission granted by competent authorities to use the approach referred to in paragraph 1, point (a), is limited to the corresponding hypothetical netting set and does not cover all transactions within the eligible netting set.

Institutions shall document how they use a combination of the approaches referred to in paragraph 1, points (a) and (b), and as set out in this paragraph, to calculate the own funds requirements for CVA risk on a permanent basis.

Article 383

Standardised approach

The competent authority shall grant an institution permission to calculate its own funds requirements for CVA risk for a portfolio of transactions with one or more counterparties by using the standardised approach in accordance with paragraph 3 of this Article, after having assessed whether the institution complies with the following requirements:

(a) the institution has established a distinct unit which is responsible for the institution’s overall risk management and hedging of CVA risk;

(b) for each counterparty concerned, the institution has developed a regulatory CVA model to calculate the CVA of that counterparty in accordance with Article 383a;

(c) for each counterparty concerned, the institution is able to calculate, at least on a monthly basis, the sensitivities of its CVA to the risk factors concerned as determined in accordance with Article 383b;

(d) for all positions in eligible hedges recognised in accordance with Article 386 for the purpose of calculating the own funds requirements for CVA risk using the standardised approach, the institution is able to calculate, and at least on a monthly basis, the sensitivities of those positions to the relevant risk factors determined in accordance with Article 383b;

(e) the institution has established a risk control unit that is independent from business trading units and the unit referred to in point (a) and that reports directly to the management body; that risk control unit shall be responsible for designing and implementing the standardised approach and shall produce and analyse monthly reports on the output of that approach and, moreover, the risk control unit shall assess the appropriateness of the institution’s trading limits and include the results of that assessment in its monthly reports; the risk control unit shall have a sufficient number of staff with a level of skills that is appropriate to fulfil its purpose.

For the purposes of the first subparagraph, point (c), of this paragraph the sensitivity of a counterparty’s CVA to a risk factor means the relative change in the value of that CVA, as a result of a change in the value of one of the relevant risk factors of that CVA, calculated using the institution’s regulatory CVA model in accordance with Articles 383i and 383j.

For the purposes of the first subparagraph, point (d), of this paragraph the sensitivity of a position in an eligible hedge to a risk factor means the relative change in the value of that position, as a result of a change in the value of one of the relevant risk factors of that position, calculated using the institution’s pricing model in accordance with Articles 383i and 383j.

For the purpose of calculating the own funds requirements for CVA risk, the following definitions apply:

(1) “risk class” means any of the following categories: (a) interest rate risk; (b) counterparty credit spread risk; (c) reference credit spread risk; (d) equity risk; (e) commodity risk; (f) foreign exchange risk;

(2) “CVA portfolio” means the portfolio composed of the aggregate CVA and the eligible hedges referred to in paragraph 1, point (d);

(3) “aggregate CVA” means the sum of the CVAs calculated using the regulatory CVA model for the counterparties referred to in paragraph 1, first subparagraph.

Institutions shall determine the own funds requirements for CVA risk using the standardised approach as the sum of the following own funds requirements calculated in accordance with Article 383b:

(a) the own funds requirements for delta risk which capture the risk of changes in the institution’s CVA portfolio due to movements in the relevant non-volatility related risk factors;

(b) the own funds requirements for vega risk which capture the risk of changes in the institution’s CVA portfolio due to movements in the relevant volatility related risk factors.

Article 383a

Regulatory CVA model

A regulatory CVA model used for calculating the own funds requirements for CVA risk in accordance with Article 383 shall be conceptually sound, implemented with integrity, and comply with all of the following requirements:

(a) the regulatory CVA model is capable of modelling the CVA of a given counterparty, recognising netting and margin agreements at netting set level, where relevant, in accordance with this Article;

(b) the institution estimates the counterparty’s probabilities of default from the counterparty credit spreads and market-consensus expected loss given default for that counterparty;

(c) the expected loss given default referred to in point (a) shall be the same as the market-consensus expected loss given default referred to in point (b), unless the institution can demonstrate that the seniority of the portfolio of transactions with that counterparty differs from the seniority of senior unsecured bonds issued by that counterparty;

(d) at each future time point, the simulated discounted future exposure of the portfolio of transactions with a counterparty is calculated with an exposure model by repricing all transactions in that portfolio, based on the simulated joint changes of the market risk factors that are material to those transactions using an appropriate number of scenarios, and discounting the prices to the date of calculation using risk-free interest rates;

(e) the regulatory CVA model is capable of modelling significant dependency between the simulated discounted future exposure of the portfolio of transactions and the counterparty credit spreads;

(f) where the transactions of the portfolio are included in a netting set subject to a margin agreement and daily mark-to-market valuation, the collateral posted and received as part of that agreement is recognised as a risk mitigant in the simulated discounted future exposure, where all of the following conditions are met: (i) the institution determines the margin period of risk relevant for that netting set in accordance with the requirements set out in Article 285(2) and (5), and reflects that margin period in the calculation of the simulated discounted future exposure; (ii) all applicable features of the margin agreement, including the frequency of margin calls, the type of contractually eligible collateral, the threshold amounts, the minimum transfer amounts, the independent amounts and the initial margins for both the institution and the counterparty are appropriately reflected in the calculation of the simulated discounted future exposure; (iii) the institution has established a collateral management unit that complies with Article 287 for all collateral recognised for calculating the own funds requirements for CVA risk using the standardised approach.

For the purposes of the first subparagraph, point (a), CVA shall have a positive sign and shall be calculated as a function of the counterparty’s expected loss given default, an appropriate set of the counterparty’s probabilities of default at future time points and an appropriate set of simulated discounted future exposures of the portfolio of transactions with that counterparty at future time points until the maturity of the longest transaction in that portfolio.

For the purposes of the demonstration referred to in the first subparagraph, point (c), collateral received from the counterparty shall not change the seniority of the exposure.

For the purposes of the first subparagraph, point (f)(iii), of this paragraph where the institution has already established a collateral management unit for using the internal model method referred to in Article 283, the institution shall not be required to establish an additional collateral management unit where that institution demonstrates to its competent authority that such a unit complies with the requirements set out in Article 287 for the collateral recognised for calculating the own funds requirements for CVA risk using the standardised approach.

For the purposes of paragraph 1, point (b), where the credit default swap spreads of the counterparty are observable in the market, an institution shall use those spreads. Where such credit default swap spreads are not available, an institution shall use one of the following:

(a) credit spreads from other instruments issued by the counterparty reflecting current market conditions;

(b) proxy spreads that are appropriate considering the rating, industry and region of the counterparty.

An institution using a regulatory CVA model shall comply with all of the following qualitative requirements:

(a) the exposure model referred to in paragraph 1 is part of the institution’s internal CVA risk management system that includes the identification, measurement, management, approval and internal reporting of CVA and CVA risk for accounting purposes;

(b) the institution has in place a process for ensuring compliance with a documented set of internal policies, controls, assessment of model performance and procedures concerning the exposure model referred to in paragraph 1;

(c) the institution shall have an independent validation unit that is responsible for the effective initial and ongoing validation of the exposure model referred to in paragraph 1 of this Article; that unit shall be independent from business credit and trading units, including the unit referred to in Article 383(1), point (a), and report directly to senior management; it shall have a sufficient number of staff with a level of skills that is appropriate to fulfil that purpose;

(d) the senior management shall be actively involved in the risk control process and shall regard CVA risk control as an essential aspect of the business, to which appropriate resources need to be devoted;

(e) the institution shall document the process for initial and ongoing validation of the exposure model referred to in paragraph 1 to a level of detail that would enable a third party to understand how the models operate, their limitations, and their key assumptions, and recreate the analysis; that documentation shall set out the minimum frequency with which ongoing validation will be conducted, as well as other circumstances, such as a sudden change in market behaviour, under which additional validation shall be conducted; it shall describe how the validation is conducted with respect to data flows and portfolios, what analyses are used and how representative counterparty portfolios are constructed;

(f) the pricing models used in the exposure model referred to in paragraph 1 for a given scenario of simulated market risk factors shall be tested against appropriate independent benchmarks for a wide range of market states as part of the initial and ongoing model validation process; pricing models for options shall account for the non-linearity of option value with respect to market risk factors;

(g) an independent review of the institution’s internal CVA risk management system referred to in point (a) of this paragraph shall be carried out by the institution’s internal auditing process on a regular basis; that review shall include the activities both of the unit referred to in Article 383(1), point (a), and of the independent validation unit referred to in point (c) of this paragraph;

(h) the regulatory CVA model used by the institution for calculating the simulated discounted future exposure referred to in paragraph 1, shall reflect transaction terms and specifications and margin agreements in a timely, complete, and conservative manner; the terms and specifications shall reside in a secure database subject to formal and periodic audit; the transmission of transaction terms and specifications data and margin agreements to the exposure model shall also be subject to internal audit, and formal reconciliation processes shall be in place between the internal model and source data systems to verify on an ongoing basis that transaction terms, specifications and margin agreements are being reflected in the exposure system correctly or, at least, conservatively;

(i) the current and historical market data inputs used in the model by the institution for calculating the simulated discounted future exposure referred to in paragraph 1 shall be acquired independently of the business lines and fed into that model in a timely and complete manner and maintained in a secure database subject to formal and periodic audit; an institution shall have a well-developed data integrity process to handle inappropriate data observations; where the model relies on proxy market data, an institution shall design internal policies to identify suitable proxies and shall demonstrate empirically on an ongoing basis that the proxies provide a conservative representation of the underlying risk;

(j) the exposure model referred to in paragraph 1 shall capture the transaction specific and contractual information necessary in order to aggregate exposures at the level of the netting set; an institution shall verify that transactions are assigned to the appropriate netting set within the model.

For the purpose of calculating the own funds requirements for CVA risk, the exposure model referred to in paragraph 1 of this Article may have different specifications and assumptions in order to meet all requirements laid down in Article 383a, except that its market data inputs and netting recognition shall remain the same as the ones used for accounting purposes.

EBA shall develop draft regulatory technical standards to specify:

(a) how proxy spreads referred to in paragraph 2, point (b), are to be determined by the institution for the purposes of calculating default probabilities;

(b) further technical elements that institutions are to take into account when calculating the counterparty’s expected loss given default, the counterparty’s probabilities of default and the simulated discounted future exposure of the portfolio of transactions with that counterparty and CVA, as referred to in paragraph 1;

(c) which other instruments referred to in paragraph 2, point (a), are appropriate to estimate the counterparty’s probabilities of default and how institutions are to make that estimate.

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2027.

EBA shall develop draft regulatory technical standards to specify:

(a) the conditions for assessing the materiality of extensions and changes to the use of the standardised approach as referred to in Article 383(3);

(b) the assessment methodology under which competent authorities are to verify an institution’s compliance with the requirements set out in Articles 383 and 383a.

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2028.

Article 383b

Own funds requirements for delta and vega risks

For the calculation of the vega risk sensitivities of the aggregate CVAs, sensitivities both to volatilities used in the exposure model to simulate risk factors and to volatilities used to reprice option transactions in the portfolio with the counterparty shall be included.

By way of derogation from paragraph 1 of this Article, subject to the permission of the competent authority, an institution may use alternative definitions of delta and vega risk sensitivities in the calculation of the own funds requirements of a trading book position under this Chapter, provided that the institution meets all of the following conditions:

(a) those alternative definitions are used for internal risk management purposes or for the reporting of profits and losses to senior management by an independent risk control unit within the institution;

(b) the institution demonstrates that those alternative definitions are more appropriate for capturing the sensitivities of the position than the formulae set out in Articles 383i and 383j, and that the resulting delta and vega risk sensitivities do not materially differ from the ones obtained applying the formulae set out in Articles 383i and 383j, respectively.

An institution may introduce additional risk factors that correspond to qualified index instruments for the following risk classes:

(a) counterparty credit spread risk;

(b) reference credit spread risk; and

For the purposes of delta risks, an index instrument shall be considered qualified where it meets the conditions set out in Article 325i. For vega risks, all index instruments shall be considered qualified.

An institution shall calculate sensitivities of CVA and eligible hedges to qualified index risk factors in addition to sensitivities to the non-index risk factors.

An institution shall calculate delta and vega risk sensitivities to a qualified index risk factor as a single sensitivity to the underlying qualified index. Where 75 % of the constituents of a qualified index are mapped to the same sector as set out in Articles 383p, 383s and 383v, the institution shall map the qualified index to that same sector. Otherwise, the institution shall map the sensitivity to the applicable qualified index bucket.

The weighted sensitivities of the aggregate CVA and of the market value of all eligible hedges to each risk factor shall be calculated by multiplying the respective net sensitivities by the corresponding risk weight, in accordance with the following formulae:

where:

k = the index that denotes the risk factor k;

= the weighted sensitivity of the aggregate CVA to risk factor k;

RWk = the risk weight applicable to the risk factor k;

= the net sensitivity of the aggregate CVA to risk factor k;

= the weighted sensitivity of the market value of all eligible hedges in the CVA portfolio to risk factor k;

= the net sensitivity of the market value of all eligible hedges in the CVA portfolio to risk factor k.

Institutions shall calculate the net-weighted sensitivity WSk of the CVA portfolio to risk factor k in accordance with the following formula:

The net-weighted sensitivities within the same bucket shall be aggregated in accordance with the following formula, using the corresponding correlations ρkl to weighted sensitivities within the same bucket set out in Articles 383l, 383t and 383q giving rise to the bucket-specific sensitivity Kb:

where:

Kb = the bucket-specific sensitivity of bucket b;

WSk = the net-weighted sensitivities;

ρkl = the corresponding intra-bucket correlation parameters;

R = the hedging disallowance parameter equal to 0,01 .

The bucket-specific sensitivity shall be calculated in accordance with paragraphs 5, 6 and 7 of this Article for each bucket within a risk class. Once the bucket-specific sensitivity has been calculated for all buckets, weighted sensitivities to all risk factors across buckets shall be aggregated in accordance with the following formula, using the corresponding correlations γbc for weighted sensitivities in different buckets set out in Articles 383l, 383o, 383r, 383u, 383w and 383z giving rise to the risk-class specific own funds requirements for delta or vega risk:

where:

mCVA = a multiplier factor which is equal to 1; the competent authority may increase the value of mCVA where the institution’s regulatory CVA model shows deficiencies preventing the appropriate measurement of the own funds requirements for CVA risk;

Kb = the bucket-specific sensitivity of bucket b;

γbc = the correlation parameter between buckets b and c;

for all risk factors in bucket b;

for all risk factors in bucket c.

Article 383c

Interest rate risk factors

The interest rate delta risk factors that are applicable to interest-rate sensitive instruments in the CVA portfolio shall be the risk-free rates per currency concerned and per each of the following maturities: 1 year, 2 years, 5 years, 10 years and 30 years.

The interest rate delta risk factors applicable to inflation-rate sensitive instruments in the CVA portfolio shall be the inflation rates per currency concerned and per each of the following maturities: 1 year, 2 years, 5 years, 10 years and 30 years.

Where the data on market-implied swap curves described in the first subparagraph are insufficient, the risk-free rates may be derived from the most appropriate sovereign bond curve for a given currency.

Article 383d

Foreign exchange risk factors

Article 383e

Counterparty credit spread risk factors

Article 383f

Reference credit spread risk factors

Article 383g

Equity risk factors

Article 383h

Commodity risk factors

Article 383i

Delta risk sensitivities

Institutions shall calculate delta sensitivities consisting of interest rate risk factors as follows:

(a) the delta sensitivities of the aggregate CVA to risk factors consisting of risk-free rates, as well as of an eligible hedge to those risk factors, shall be calculated as follows: where: = the sensitivities of the aggregate CVA to a risk-free rate risk factor; rkt = the value of the risk-free rate risk factor k with maturity t; VCVA = the aggregate CVA calculated by the regulatory CVA model; x,y = risk factors other than rkt in VCVA; = the sensitivities of the eligible hedge i to a risk-free rate risk factor; Vi = the pricing function of the eligible hedge i; w,z = risk factors other than rkt in the pricing function Vi;

(b) the delta sensitivities to risk factors consisting of inflation rates as well as of an eligible hedge to those risk factors, shall be calculated as follows: where: = the sensitivities of the aggregate CVA to an inflation rate risk factor; inflkt = the value of an inflation rate risk factor k with maturity t; VCVA = the aggregate CVA calculated by the regulatory CVA model; x,y = risk factors other than inflkt in VCVA; = the sensitivities of the eligible hedge i to an inflation rate risk factor; Vi = the pricing function of the eligible hedge i; w,z = risk factors other than inflkt in the pricing function Vi.

Institutions shall calculate the delta sensitivities of the aggregate CVA to risk factors consisting of foreign exchange spot rates, as well as of an eligible hedge instrument to those risk factors, as follows:

where:

= the sensitivities of the aggregate CVA to a foreign exchange spot rate risk factor;

FXk = the value of the foreign exchange spot rate risk factor k;

VCVA = the aggregate CVA calculated by the regulatory CVA model;

x,y = risk factors other than FXk in VCVA;

= the sensitivities of the eligible hedge i to a foreign exchange spot rate risk factor;

Vi = the pricing function of the eligible hedge i;

w,z = risk factors other than FXk in the pricing function Vi.

Institutions shall calculate the delta sensitivities of the aggregate CVA to risk factors consisting of counterparty credit spread rates, as well as of an eligible hedge instrument to those risk factors, as follows:

where:

= the sensitivities of the aggregate CVA to a counterparty credit spread rate risk factor;

ccskt = the value of the counterparty credit spread rate risk factor k at maturity t;

VCVA = the aggregate CVA calculated by the regulatory CVA model;

x,y = risk factors other than ccskt in VCVA;

= the sensitivities of the eligible hedge i to a counterparty credit spread rate risk factor;

Vi = the pricing function of the eligible hedge i;

w,z = risk factors other than ccskt in the pricing function Vi.

Institutions shall calculate the delta sensitivities of the aggregate CVA to risk factors consisting of reference credit spread rates, as well as of an eligible hedge instrument to those risk factors, as follows:

where:

= the sensitivities of the aggregate CVA to a reference credit spread rate risk factor;

rcskt = the value of the reference credit spread rate risk factor k at maturity t;

VCVA = the aggregate CVA calculated by the regulatory CVA model;

x,y = risk factors other than ccskt in VCVA ;

= the sensitivities of the eligible hedge i to a reference credit spread rate risk factor;

Vi = the pricing function of the eligible hedge i;

w,z = risk factors other than ccskt in the pricing function Vi.

Institutions shall calculate the delta sensitivities of the aggregate CVA to risk factors consisting of equity spot prices, as well as of an eligible hedge instrument to those risk factors, as follows:

where:

= the sensitivities of the aggregate CVA to an equity spot price risk factor;

EQ = the value of the equity spot price;

VCVA = the aggregate CVA calculated by the regulatory CVA model;

x,y = risk factors other than EQ in VCVA;

= the sensitivities of the eligible hedge i to an equity spot price risk factor;

Vi = the pricing function of the eligible hedge i;

w,z = risk factors other than EQ in the pricing function Vi.

Institutions shall calculate the delta sensitivities of the aggregate CVA to risk factors consisting of commodity spot prices, as well as of an eligible hedge instrument to those risk factors, as follows:

where:

= the sensitivities of the aggregate CVA to a commodity spot price risk factor;

CTY = the value of the commodity spot price;

VCVA = the aggregate CVA calculated by the regulatory CVA model;

x,y = risk factors other than CTY in VCVA;

= the sensitivities of the eligible hedge i to a commodity spot price risk factor;

Vi = the pricing function of the eligible hedge i;

w,z = risk factors other than CTY in the pricing function Vi.

Article 383j

Vega risk sensitivities

Institutions shall calculate the vega risk sensitivities of the aggregate CVA to risk factors consisting of implied volatility, as well as of an eligible hedge instrument to those risk factors, as follows:

where:

= the sensitivities of the aggregate CVA to an implied volatility risk factor;

volk = the value of the implied volatility risk factor;

VCVA = the aggregate CVA calculated by the regulatory CVA model;

x,y = risk factors other than volk in the pricing function VCVA;

= the sensitivities of the eligible hedge instrument i to an implied volatility risk factor;

Vi = the pricing function of the eligible hedge i;

w,z = risk factors other than volk in the pricing function Vi.

Article 383k

Risk weights for interest rate risk

For the currencies referred to in Article 383c(2), the risk weights of risk-free rate delta sensitivities for each bucket in Table 1 shall be the following:

Bucket	Maturity	Risk weight
1	1 year	1,11 %
2	2 years	0,93 %
3	5 years	0,74 %
4	10 years	0,74 %
5	30 years	0,74 %

Article 383l

Intra-bucket correlations for interest rate risk

For the currencies referred to in Article 383c(2), the correlation parameters that institutions shall apply to the aggregation of the risk-free rate delta sensitivities between the different buckets set out in Article 383k, Table 1, shall be the following:

Bucket	1	2	3	4	5
1	100 %	91 %	72 %	55 %	31 %
2		100 %	87 %	72 %	45 %
3			100 %	91 %	68 %
4				100 %	83 %
5					100 %

Article 383m

Correlation across buckets for interest rate risk

The cross-bucket correlation parameter for interest rate delta and vega risks shall be set at 0,5 for all currency pairs.

Article 383n

Risk weights for foreign exchange risk

The risk weight of the foreign exchange risk factors concerning currency pairs which are composed of the euro and the currency of a Member State participating in ERM II shall be one of the following:

(a) the risk weight referred to in paragraph 1, divided by 3;

(b) the maximum fluctuation within the fluctuation band formally agreed by the Member State and the ECB, if that fluctuation band is narrower than the fluctuation band defined under ERM II.

Article 383o

Correlations for foreign exchange risk

Article 383p

Risk weights for counterparty credit spread risk

The risk weights for the delta sensitivities to counterparty credit spread risk factors shall be the same for all maturities (0,5 years, 1 year, 3 years, 5 years, 10 years) within each bucket in Table 1 and shall be the following:

Bucket number	Credit quality	Sector	Risk weight
1	All	Central government, including central banks, of Member States	0,5 %
2	Credit quality step 1 to 3	Central government, including central banks, of third countries, multilateral development banks and international organisations referred to in Article 117(2) and Article 118	0,5 %
3	Regional government or local authority and public sector entities	1,0 %
4	Financial sector entities, including credit institutions incorporated or established by a central government, a regional government or a local authority, and promotional lenders	5,0 %
5	Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying	3,0 %
6	Consumer goods and services, transportation and storage, administrative and support service activities	3,0 %
7	Technology, telecommunications	2,0 %
8	Health care, utilities, professional and technical activities	1,5 %
9	Covered bonds issued by credit institutions established in Member States	1,0 %
10	Credit quality step 1	Covered bonds issued by credit institutions in third countries	1,5 %
Credit quality steps 2 to 3	2,5 %
11	Credit quality steps 1 to 3	Other sector	5,0 %
12	Qualified indices	1,5 %
13	Credit quality step 4 to 6 and unrated	Central government, including central banks, of third countries, multilateral development banks and international organisations referred to in Article 117(2) and Article 118	2,0 %
14	Regional government or local authority and public sector entities	4,0 %
15	Financial sector entities, including credit institutions incorporated or established by a central government, a regional government or a local authority, and promotional lenders	12,0 %
16	Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying	7,0 %
17	Consumer goods and services, transportation and storage, administrative and support service activities	8,5 %
18	Technology, telecommunications	5,5 %
19	Health care, utilities, professional and technical activities	5,0 %
20	Other sector	12,0 %
21	Qualified indices	5,0 %

Where there are no external ratings for a specific counterparty, institutions may, subject to approval by the competent authorities, map the internal rating to a corresponding external rating and assign a risk weight corresponding to either credit quality step 1 to 3 or credit quality step 4 to 6. Otherwise, the risk weights for unrated exposures shall be applied.

Article 383q

Intra-bucket correlations for counterparty credit spread risk

Between two sensitivities WSk and WSl, resulting from risk exposures assigned to sector buckets 1 to 11 and 13 to 20, as set out in Article 383p(1), Table 1, the correlation parameter ρkl shall be set as follows:

where:

shall be equal to 1 where the two vertices of the sensitivities k and l are identical, otherwise it shall be equal to 90 %;

shall be equal to 1 where the two names of sensitivities k and l are identical, 90 % if the two names are distinct but legally related, otherwise it shall be equal to 50 %;

shall be equal to 1 where the two names are both in buckets 1 to 11 or are both in buckets 13 to 20, otherwise it shall be equal to 80 %.

Between two sensitivities WSk and WSl resulting from risk exposures assigned to sector buckets 12 and 21, the correlation parameter ρkl shall be set as follows:

where:

shall be equal to 1 where the two vertices of the sensitivities k and l are identical, otherwise it shall be equal to 90 %;

shall be equal to 1 where the two names of sensitivities k and l are identical and the two indices are of the same series, 90 % if the two indices are the same but of distinct series, otherwise it shall be equal to 80 %;

shall be equal to 1 where the two names are both in bucket 12 or both in bucket 21, otherwise it shall be equal to 80 %.

Article 383r

Reading this document does not replace reading the official text published in the Official Journal of the European Union. We assume no responsibility for any inaccuracies arising from the conversion of the original to this format.

This text is published under EUR-Lex's own terms of reuse, not a Legalize or public-domain licence. EUR-Lex
Creative Commons Attribution 4.0 International (CC BY 4.0)
© European Union, https://eur-lex.europa.eu — Source: EUR-Lex (Publications Office of the European Union). Reused under the Creative Commons Attribution 4.0 International (CC BY 4.0) licence. Only EU legislation published in the printed Official Journal of the European Union is deemed authentic; consolidated texts are reproduced here for documentation purposes and have been reformatted to Markdown.