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

i	=	the index that denotes all the positions of instruments referred to in paragraph 1 and including risk factor k;
---	---	---
xk	=	the current value of risk factor k;
---	---	---
Vi (xk)	=	the value of instrument i as estimated by the pricing model of the institution based on the current value of risk factor k;
---	---	---
Image omitted; see official source	=	the value of instrument i as estimated by the pricing model of the institution based on an upward shift of the value of risk factor k;
---	---	---
Image omitted; see official source	=	the value of instrument i as estimated by the pricing model of the institution based on a downward shift of the value of risk factor k;
---	---	---
Image omitted; see official source	=	the risk weight applicable to risk factor k determined in accordance with Section 6;
---	---	---
sik	=	the delta sensitivity of instrument i with respect to risk factor k, calculated in accordance with Article 325r.

For the purposes of the calculation referred to in paragraph 2, where xk is a curve of risk factors allocated to the GIRR, CSR and commodity risk classes, sik shall be the sum of the delta sensitivities to the risk factor of the curve across all tenors of the curve.

Image omitted; see official source

where:

b	=	the index that denotes a bucket of a given risk class;
---	---	---
Kb	=	own funds requirements for curvature risk for bucket b;

Image omitted; see official source;

Image omitted; see official source;

Image omitted; see official source;

pkl	=	the intra-bucket correlations between risk factors k and l as prescribed in Section 6;
---	---	---
k, l	=	the indices that denote all the risk factors of instruments referred to in paragraph 1 that are assigned to bucket b;
---	---	---
(Image omitted; see official source)	=	the upward net curvature risk position;
---	---	---
(Image omitted; see official source)	=	the downward net curvature risk position.

Image omitted; see official source

Image omitted; see official source

where:

b, c	=	the indices that denote all the buckets of a given risk class that corresponds to instruments referred to in paragraph 1;
---	---	---
Kb	=	own funds requirements for curvature risk for bucket b;

Image omitted; see official source;

Image omitted; see official source;

γbc	=	the inter-bucket correlations between buckets b and c as set out in Section 6.

Article 325h

Aggregation of risk-class specific own funds requirements for delta, vega and curvature risks

• (a) the medium correlations scenario, whereby the correlation parameters ρkl and γbc remain unchanged from those specified in Section 6;

• (b) the high correlations scenario, whereby the correlation parameters ρkl and γbc that are specified in Section 6 shall be uniformly multiplied by 1,25, with ρkl and γbc subject to a cap at 100 %;

• (c) the ‘low correlations’ scenario, whereby the correlation parameters ρkl and γbc that are specified in Section 6 shall be replaced by Image omitted; see official source andImage omitted; see official source, respectively.

Article 325i

Treatment of index instruments and other multi-underlying instruments

• (a) for the purposes of calculating the own funds requirements for delta and curvature risk, institutions shall consider that they hold individual positions directly in the underlying constituents of the index or other multi-underlying instruments, except for a position in an index included in the ACTP for which they shall calculate a single sensitivity to the index;

• (b) institutions are allowed to net the sensitivities to a risk factor of a given constituent of an index instrument or other multi-underlying instrument with the sensitivities to the same risk factor of the same constituent of single name instruments, except for positions included in the ACTP;

• (c) for the purposes of calculating the own funds requirements for vega risk, institutions may either consider that they directly hold individual positions in the underlying constituents of the index or other multi-underlying instrument, or calculate a single sensitivity to the underlying of that instrument. In the latter case, institutions shall assign the single sensitivity to the relevant bucket as set out in Subsection 1 of Section 6 as follows:
• (i) where, taking into account the weightings of that index, more than 75 % of constituents in that index would be mapped to the same bucket, institutions shall assign the sensitivity to that bucket and treat it as a single-name sensitivity in that bucket;
• (ii) in all other cases, institutions shall assign the sensitivity to the relevant index bucket.

• (a) where, taking into account the weightings of that listed index, more than 75 % of constituents in that listed index would be mapped to the same bucket, that sensitivity shall be assigned to that bucket and treated as a single-name sensitivity in that bucket;

• (b) in all other cases, institutions shall assign the sensitivity to the relevant listed index bucket.

• (a) the constituents of the listed index and their respective weightings in that index are known;

• (b) the listed index contains at least 20 constituents;

• (c) no single constituent contained within the listed index represents more than 25 % of the total market capitalisation of that index;

• (d) no set comprising one tenth of the total number of constituents of the listed index, rounded up to the next integer, represents more than 60 % of the total market capitalisation of that index;

• (e) the total market capitalisation of all the constituents of the listed index is no less than EUR 40 billion.

Article 325j

Treatment of collective investment undertakings

• (a) an institution that meets the condition set out in Article 104(8), point (a), shall calculate the own funds requirements for market risk of that position by looking through the underlying positions of the CIU, on a monthly basis, as if those positions were directly held by the institution;

• (b) an institution that meets the condition set out in Article 104(8), point (b), shall calculate the own funds requirements for market risk of that position by using either of the following approaches:
• (i) it shall consider the position in the CIU as a single equity position allocated to the bucket ‘other sector’ in Article 325ap(1), Table 8;
• (ii) it shall consider the limits set in the CIU’s mandate and in the relevant law.

For the purposes of the calculation referred to in the first subparagraph, point (b)(ii), of this paragraph the institution may calculate the own funds requirements for counterparty credit risk and own funds requirements for credit valuation adjustment risk of derivative positions of the CIU using the simplified approach set out in Article 132a(3).

1a. For the purposes of the approaches referred to in paragraph 1, point (b), of this Article the institution shall:

• (a) apply the own funds requirements for default risk set out in Section 5 and the residual risk add-on set out in Section 4 to a position in a CIU, where the mandate of that CIU allows it to invest in exposures that shall be subject to those own funds requirements; when using the approach referred to in paragraph 1, point (b)(i), of this Article the institution shall consider the position in the CIU as a single unrated equity position allocated to the bucket ‘unrated’ in Article 325y(1), Table 2; and

• (b) for all positions in the same CIU, use the same approach among the approaches set out in paragraph 1, point (b), of this Article to calculate the own funds requirements on a stand-alone basis as a separate portfolio.

However, where data for the last 12 months are not fully available, an institution may, subject to permission from the institution’s competent authority, use an annualised return difference from a period shorter than 12 months.

The institution shall use the same hypothetical portfolio as the one referred to in the first subparagraph to calculate, where applicable, the own funds requirements for default risk set out in Section 5 and the residual risk add-on set out in Section 4 to a position in a CIU.

The methodology developed by the institution to determine the hypothetical portfolios of all positions in CIUs for which the calculations referred to in the first subparagraph are used shall be approved by its competent authority.

• (a) the third party is one of the following:
• (i) the depository institution or the depository financial institution of the CIU, provided that the CIU exclusively invests in securities and deposits all securities at that depository institution or depository financial institution;
• (ii) for CIUs not covered by point (i) of this point, the CIU management company, provided that the CIU management company meets the criteria set out in Article 132(3), point (a);
• (iii) a third-party vendor on condition that the data, information or risk metrics are provided or calculated by the third parties referred to in point (i) or (ii) of this point or by another such third-party vendor;

• (b) the third party provides the institution with the data, information or risk metrics to calculate the own funds requirement for market risk of the CIU position in accordance with the approach referred to in paragraph 1, point (a), of this Article;

• (c) an external auditor of the institution has confirmed the adequacy of the third-party’s data, information or risk metrics referred to in point (b) of this paragraph and the institution’s competent authority has unrestricted access to those data, information or risk metrics upon request.

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

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 325k

Underwriting positions

Table 1

Business day 0	0 %
Business day 1	10 %
Business days 2 and 3	25 %
Business day 4	50 %
Business day 5	75 %
After business day 5	100 %

For the purposes of this Article, ‘business day 0’ means the business day on which the institution becomes unconditionally committed to accepting a known quantity of securities at an agreed price.

Section 3 Risk factor and sensitivity definitions

Subsection 1 Risk factor definitions

Article 325l

General interest rate risk factors

The delta general interest rate risk factors applicable to interest rate-sensitive instruments shall be the relevant risk-free rates per currency and per each of the following maturities: 0,25 years, 0,5 years, 1 year, 2 years, 3 years, 5 years, 10 years, 15 years, 20 years, 30 years. Institutions shall assign risk factors to the specified vertices by linear interpolation or by using a method that is most consistent with the pricing functions used by the independent risk control function of the institution to report market risk or profits and losses to senior management.

Where the data on market-implied swap curves described in paragraph 2 and the first subparagraph of this paragraph are insufficient, the risk-free rates may be derived from the most appropriate sovereign bond curve for a given currency.

Where institutions use the general interest rate risk factors derived in accordance with the procedure set out in the second subparagraph of this paragraph for sovereign debt instruments, the sovereign debt instrument shall not be exempted from the own funds requirements for credit spread risk. In those cases, where it is not possible to disentangle the risk-free rate from the credit spread component, the sensitivity to the risk factor shall be allocated both to the general interest rate risk and to credit spread risk classes.

Institutions shall apply additional risk factors for inflation risk to debt instruments whose cash flows are functionally dependent on inflation rates. Those additional risk factors shall consist of one vector of market-implied inflation rates of different maturities per currency. For each instrument, the vector shall contain as many components as there are inflation rates used as variables by the institution's pricing model for that instrument.

Each cross-currency basis risk factor shall consist of one vector of cross-currency basis of different maturities per currency. For each debt instrument, the vector shall contain as many components as there are cross-currency bases used as variables by the institution's pricing model for that instrument. Each currency shall constitute a different bucket.

Institutions shall calculate the sensitivity of the instrument to the cross-currency basis risk factor as the change in the value of the instrument, according to its pricing model, as a result of a 1 basis point shift in each of the components of the vector. Each currency shall constitute a separate bucket. Within each bucket there shall be two possible distinct risk factors: basis over euro and basis over US dollar, regardless of the number of components there are in each cross-currency basis vector. The maximum number of net sensitivities per bucket shall be two.

For netting purposes, institutions shall consider implied volatilities linked to the same risk-free rates and mapped to the same maturities to constitute the same risk factor.

Where institutions map implied volatilities to the maturities as referred to in this paragraph, the following requirements shall apply:

• (a) where the maturity of the option is aligned with the maturity of the underlying, a single risk factor shall be considered, which shall be mapped to that maturity;

• (b) where the maturity of the option is shorter than the maturity of the underlying, the following risk factors shall be considered as follows:
• (i) the first risk factor shall be mapped to the maturity of the option;
• (ii) the second risk factor shall be mapped to the residual maturity of the underlying of the option at the expiry date of the option.

There shall be no curvature risk own funds requirements for inflation and cross currency basis risks.

Article 325m

Credit spread risk factors for non-securitisation

Article 325n

Credit spread risk factors for securitisation

Institutions shall apply the credit spread risk factors referred to in paragraph 5 to securitisation positions that are not included in the ACTP, as referred to in Article 325(6), (7) and (8).

The buckets applicable to the credit spread risk for securitisations that are not included in the ACTP shall be specific to that risk-class category, as referred to in Section 6.

• (a) the delta risk factors shall be all the relevant credit spread rates of the issuers of the underlying exposures of the securitisation position, inferred from the relevant debt instruments and credit default swaps, and for each of the following maturities: 0,5 years, 1 year, 3 years, 5 years, 10 years.

• (b) the vega risk factors applicable to options with securitisation positions that are included in the ACTP as underlyings shall be the implied volatilities of the credit spreads of the issuers of the underlying exposures of the securitisation position, inferred as described in point (a) of this paragraph, which shall be mapped to the following maturities in accordance with the maturity of the corresponding option subject to own funds requirements: 0,5 years, 1 year, 3 years, 5 years, 10 years.

• (c) the curvature risk factors shall be the relevant credit spread yield curves of the issuers of the underlying exposures of the securitisation position expressed as a vector of credit spread rates for different maturities, inferred as indicated in point (a) of this paragraph; for each instrument, the vector shall contain as many components as there are different maturities of credit spread rates that are used as variables by the institution's pricing model for that instrument.

• (a) the delta risk factors shall be the relevant tranche credit spread rates, mapped to the following maturities, in accordance with the maturity of the tranche: 0,5 years, 1 year, 3 years, 5 years, 10 years;

• (b) the vega risk factors applicable to options with securitisation positions that are not included in the ACTP as underlyings shall be the implied volatilities of the credit spreads of the tranches, each of them mapped to the following maturities in accordance with the maturity of the option subject to own funds requirements: 0,5 years, 1 year, 3 years, 5 years, 10 years;

• (c) the curvature risk factors shall be the same as those described in point (a) of this paragraph; to all those risk factors, a common risk weight shall be applied, as referred to in Section 6.

Article 325o

Equity risk factors

For the purposes of equity risk, a specific equity repo curve shall constitute a single risk factor, which is expressed as a vector of repo rates for different maturities. For each instrument, the vector shall contain as many components as there are different maturities of repo rates that are used as variables by the institution's pricing model for that instrument.

Institutions shall calculate the sensitivity of an instrument to an equity risk factor as the change in the value of the instrument, according to its pricing model, as a result of a 1 basis point shift in each of the components of the vector. Institutions shall offset sensitivities to the repo rate risk factor of the same equity security, regardless of the number of components of each vector.

Article 325p

Commodity risk factors

The sensitivity of the instrument to each risk factor used in the curvature risk formula shall be calculated as specified in Article 325g. For the purposes of curvature risk, institutions shall consider vectors having a different number of components to constitute the same risk factor, provided that those vectors correspond to the same commodity type.

Article 325q

Foreign exchange risk factors

• (a) the institution uses only one base currency;

• (b) the institution applies the base currency consistently to all its trading book and non-trading book positions;

• (c) the institution has demonstrated to the satisfaction of its competent authority that:
• (i) using the chosen base currency provides an appropriate risk representation for the institution’s positions subject to foreign exchange risks;
• (ii) the choice of base currency is compatible with the manner in which the institution manages those foreign exchange risks internally;
• (iii) the choice of base currency is not driven primarily by the desire to reduce the institution’s own funds requirements;

• (d) the institution takes into account the translation risk between the reporting currency and the base currency.

An institution that has been permitted to use a base currency as set out in the first subparagraph shall convert the resulting own funds requirements for foreign exchange risk into the reporting currency using the prevailing spot exchange rate between the base currency and the reporting currency.

Subsection 2 Sensitivity definitions

Article 325r

Delta risk sensitivities

• (a) the sensitivities to risk factors consisting of risk-free rates shall be calculated as follows: Image omitted; see official source where: Image omitted; see official source = the sensitivities to risk factors consisting of risk-free rates; rkt = the rate of a risk-free curve k with maturity t; Vi (.) = the pricing function of instrument i; and x,y = risk factors other than rkt in the pricing function Vi;

• (b) the sensitivities to risk factors consisting of inflation risk and cross-currency basis shall be calculated as follows: Image omitted; see official source where: Image omitted; see official source = the sensitivities to risk factors consisting of inflation risk and cross-currency basis; Image omitted; see official source = a vector of m components representing the implied inflation curve or the cross-currency basis curve for a given currency j with m being equal to the number of inflation or cross-currency related variables used in the pricing model of instrument i; Image omitted; see official source = the unity matrix of dimension (1 × m); Vi (.) = the pricing function of the instrument i; and y, z = other variables in the pricing model.

Image omitted; see official source

where:

Image omitted; see official source	=	the delta credit spread risk sensitivities for all securitisation and non-securitisation positions;
---	---	---
cskt	=	the value of the credit spread rate of an issuer j at maturity t;
---	---	---
Vi (.)	=	the pricing function of instrument i; and
---	---	---
x,y	=	risk factors other than cskt in the pricing function Vi.

• (a) the sensitivities to risk factors consisting of equity spot prices shall be calculated as follows: Image omitted; see official source where: sk = the sensitivities to risk factors consisting of equity spot prices; k = a specific equity security; EQk = the value of the spot price of that equity security; Vi (.) = the pricing function of instrument i; and x,y = risk factors other than EQk in the pricing function Vi;

• (b) the sensitivities to risk factors consisting of equity repo rates shall be calculated as follows: Image omitted; see official source where: Image omitted; see official source = the sensitivities to risk factors consisting of equity repo rates; k = the index that denotes the equity; Image omitted; see official source = a vector of m components representing the repo term structure for a specific equity k with m being equal to the number of repo rates corresponding to different maturities used in the pricing model of instrument i; Image omitted; see official source = the unity matrix of dimension (1 · m); Vi (.) = the pricing function of the instrument i; and y,z = risk factors other than

Image omitted; see official source in the pricing function Vi.

Image omitted; see official source

where:

sk	=	the delta commodity risk sensitivities;
---	---	---
k	=	a given commodity risk factor;
---	---	---
CTYk	=	the value of risk factor k;
---	---	---
Vi (.)	=	the pricing function of instrument i; and
---	---	---
y, z	=	risk factors other than CTYk in the pricing model of instrument i.

Image omitted; see official source

where:

sk	=	the delta foreign exchange risk sensitivities;
---	---	---
k	=	a given foreign exchange risk factor;
---	---	---
FXk	=	the value of the risk factor;
---	---	---
Vi (.)	=	the pricing function of instrument i; and

| | | |

| --- | --- | --- | | y, z | = | risk factors other than FXk in the pricing model of instrument i. |

Article 325s

Vega risk sensitivities

Image omitted; see official source

where:

sk	=	the vega risk sensitivity of an option;
---	---	---
k	=	a specific vega risk factor, consisting of an implied volatility;
---	---	---
volk	=	the value of that risk factor, which should be expressed as a percentage; and
---	---	---
x,y	=	risk factors other than volk in the pricing function Vi.

4. Institutions shall not calculate the vega risk for securitisation tranches included in the ACTP, as referred to in Article 325(6), (7) and (8), that do not have an implied volatility. Own funds requirements for delta and curvature risk shall be computed for those securitisation tranches.

Article 325t

Requirements on sensitivity computations

By way of derogation from the first subparagraph of this paragraph, competent authorities may require an institution that has been granted permission to use the alternative internal model approach set out in Chapter 1b to use the pricing functions of the risk-measurement system of their internal model approach in the calculation of sensitivities under this Chapter for the purposes of the calculation and the reporting requirements set out in Article 325(3).

• (a) for general interest rate risk and credit spread risk, institutions shall assume, for each currency, that the underlying of the volatility risk factors for which vega risk is calculated follows either a lognormal or normal distribution in the pricing models used for those instruments;

• (b) for equity risk, commodity risk and foreign exchange risk, institutions shall assume that the underlying of the volatility risk factors for which vega risk is calculated follows a lognormal distribution in the pricing models used for those instruments.

• (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 for the position than are the formulas set out in this Subsection, and that the resulting sensitivities do not materially differ from those formulas.

• (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 for the position than are the formulae set out in this Subsection, that the linear transformation referred to in the first subparagraph reflects a vega risk sensitivity, and that the resulting sensitivities do not materially differ from the ones applying those formulae.

Section 4 The residual risk add-on

Article 325u

Own funds requirements for residual risks

• (a) the instrument references an exotic underlying, which, for the purposes of this Chapter, means a trading book instrument referencing an underlying exposure that is not in the scope of the delta, vega or curvature risk treatments under the sensitivities-based method laid down in Section 2 or the own funds requirements for the default risk set out in Section 5;

• (b) the instrument is an instrument bearing other residual risks, which, for the purposes of this Chapter, means any of the following instruments:
• (i) instruments that are subject to the own funds requirements for vega and curvature risk under the sensitivities-based method set out in Section 2 and that generate pay-offs that cannot be replicated as a finite linear combination of plain-vanilla options with a single underlying equity price, commodity price, exchange rate, bond price, credit default swap price or interest rate swap;
• (ii) instruments that are positions that are included in the ACTP referred to in Article 325(6); hedges that are included in that ACTP, as referred to in Article 325(8), shall not be considered.

• (a) 1,0 % in the case of instruments referred to in point (a) of paragraph 2;

• (b) 0,1 % in the case of instruments referred to in point (b) of paragraph 2.

• (a) the instrument is listed on a recognised exchange;

• (b) the instrument is eligible for central clearing in accordance with Regulation (EU) No 648/2012;

• (c) the instrument perfectly offsets the market risk of another position in the trading book, in which case the two perfectly matching trading book positions shall be exempted from the own funds requirement for residual risks.

4a. By way of derogation from paragraph 1, until 31 December 2032, an institution shall not apply the own funds requirement for residual risks to instruments that aim solely to hedge the market risk of positions in the trading book that generate an own funds requirement for residual risks and are subject to the same type of residual risks as the positions they hedge.

The competent authority shall grant permission to apply the treatment referred to in the first subparagraph if the institution can demonstrate on an ongoing basis to the satisfaction of the competent authority that the instruments comply with the criteria to be treated as hedging positions.

The institution shall report to the competent authority the result of the calculation of the own funds requirements for the residual risks for all instruments for which the derogation referred to in the first subparagraph is applied.

When developing those draft regulatory technical standards, EBA shall examine whether longevity risk, weather, natural disasters and future realised volatility should be considered as exotic underlyings.

EBA shall submit those draft regulatory technical standards to the Commission by 28 June 2021.

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.

EBA shall submit those draft regulatory technical standards to the Commission by 30 June 2024.

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.

7. By 31 December 2029, EBA shall submit a report to the Commission on the impact of the application of the treatment referred to in paragraph 4a. On the basis of the findings of that report, the Commission shall, where appropriate, submit to the European Parliament and to the Council a legislative proposal to prolong the treatment referred to in that paragraph.

Section 5 Own funds requirements for the default risk

Article 325v

Definitions and general provisions

• (a) ‘short exposure’ means that the default of an issuer or group of issuers leads to a gain for the institution, regardless of the type of instrument or transaction creating the exposure;

• (b) ‘long exposure’ means that the default of an issuer or group of issuers leads to a loss for the institution, regardless of the type of instrument or transaction creating the exposure;

• (c) ‘gross jump-to-default (gross JTD) amount’ means the estimated size of the loss or gain that the default of the obligor would produce for a specific exposure;

• (d) ‘net jump-to-default (net JTD) amount’ means the estimated size of the loss or gain that an institution would incur due to the default of an obligor, after offsetting between gross JTD amounts has taken place,

• (e) ‘loss given default’ or ‘LGD’ means the loss given default of the obligor on an instrument issued by that obligor expressed as a share of the notional amount of the instrument;

• (f) ‘default risk weight’ means the percentage representing the estimated probability of the default of each obligor, according to the creditworthiness of that obligor.

3. For traded non-securitisation credit and equity derivatives, JTD amounts by individual constituents shall be determined by applying a look-through approach.

Subsection 1 Own funds requirements for the default risk for non-securitisations

Article 325w

Gross jump-to-default amounts

JTDlong = max {LGD Vnotional + P&Llong + Adjustmentlong; 0}

where:

JTDlong	=	the gross JTD amount for the long exposure;
---	---	---
Vnotional	=	the notional amount of the instrument from which the exposure arises;
---	---	---
P&Llong	=	a term which adjusts for gains or losses already accounted for by the institution due to changes in the fair value of the instrument creating the long exposure; gains shall enter into the formula with a positive sign and losses shall enter into the formula with a negative sign; and
---	---	---
Adjustmentlong	=	where the instrument from which the exposure arises is a derivative instrument, the amount by which, due to the structure of the derivative instrument, the institution's loss in the event of default would be increased or reduced relative to the full loss on the underlying instrument; increases shall enter into the formula with a positive sign and decreases shall enter into the formula with a negative sign.

JTDshort = min {LGD Vnotional + P&Lshort + Adjustmentshort; 0}

where:

JTDshort	=	the gross JTD amount for the short exposure;
---	---	---
Vnotional	=	the notional amount of the instrument from which the exposure arises that shall enter into the formula with a negative sign;
---	---	---
P&Lshort	=	a term which adjusts for gains or losses already accounted for by the institution due to changes in the fair value of the instrument creating the short exposure; gains shall enter into the formula with a positive sign and losses shall enter into the formula with a negative sign; and
---	---	---
Adjustmentshort	=	where the instrument from which the exposure arises is a derivative instrument, the amount by which, due to the structure of the derivative instrument, the institution's gain in the event of default would be increased or reduced relative to the full loss on the underlying instrument; decreases shall enter into the formula with a positive sign and increases shall enter into the formula with a negative sign.

• (a) exposures to non-senior debt instruments shall be assigned an LGD of 100 %;

• (b) exposures to senior debt instruments shall be assigned an LGD of 75 %;

• (c) exposures to covered bonds, as referred to in Article 129, shall be assigned an LGD of 25 %.

• (a) in the case of a bond, the notional amount is the face value of the bond;

• (b) in the case of a sold put option on a bond, the notional amount is the notional amount of the option; in the case of a bought call option on a bond, the notional amount is 0.

JTDlong = max {LGD · Vnotional + P&Llong + Adjustmentlong; 0}

JTDshort = min {LGD · Vnotional + P&Lshort + Adjustmentshort; 0}

where:

JTDlong	=	the gross JTD amount for the long exposure;
---	---	---
Vnotional	=	the notional amount of the instrument from which the exposure arises; the notional amount is the fair value of the equity for cash equity instruments; for the JTDshort formula, the notional amount of the instrument shall enter into the formula with a negative sign;
---	---	---
P&Llong	=	a term which adjusts for gains or losses already accounted for by the institution due to changes in the fair value of the instrument creating the long exposure; gains shall enter into the formula with a positive sign and losses shall enter into the formula with a negative sign;
---	---	---
Adjustmentlong	=	the amount by which, due to the structure of the derivative instrument, the institution's loss in the event of default would be increased or reduced relative to the full loss on the underlying instrument; increases shall enter into the formula with a positive sign and decreases shall enter into the formula with a negative sign;
---	---	---
JTDshort	=	the gross JTD amount for the short exposure;
---	---	---
P&Lshort	=	a term which adjusts for gains or losses already accounted for by the institution due to changes in the fair value of the instrument creating the short exposure; gains shall enter into the formula with a positive sign and losses shall enter into the formula with a negative sign; and
---	---	---
Adjustmentshort	=	the amount by which, due to the structure of the derivative instrument, the institution's gain in the event of default would be increased or reduced relative to the full loss on the underlying instrument; decreases shall enter into the formula with a positive sign and increases shall enter into the formula with a negative sign.

• (a) how institutions are to determine the components P&Llong, P&Lshort, Adjustmentlong and Adjustmentshort when calculating the JTD amounts for different types of instruments in accordance with this Article;

• (b) which alternative methodologies institutions are to use for the purposes of the estimation of gross JTD amounts referred to in paragraph 7.

• (c) the notional amounts of instruments other than the ones referred to in points (a) and (b) of paragraph 4.

EBA shall submit those draft regulatory technical standards to the Commission by 28 June 2021.

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.

Article 325x

Net jump-to-default amounts

• (a) offsetting shall be full where all offsetting exposures have maturities of one year or more;

• (b) offsetting shall be partial where at least one of the offsetting exposures has a maturity of less than one year, in which case the size of the JTD amount of each exposure with a maturity of less than one year shall be multiplied by the ratio of the exposure's maturity relative to one year.

5. Where the contractual or legal terms of a derivative position having a debt or equity cash instrument as an underlying, and hedged with that debt or equity cash instrument, allow an institution to close out both legs of that position at the time of the expiry of the first-to-mature of the two legs with no exposure to default risk of the underlying, the net jump-to-default amount of the combined position shall be set equal to zero.

Article 325y

Calculation of the own funds requirements for the default risk

1. Net JTD amounts, irrespective of the type of counterparty, shall be multiplied by the default risk weights that correspond to their credit quality, as specified in Table 2:

Table 2

Credit quality category	Default risk weight
Credit quality step 1	0,5 %
Credit quality step 2	3 %
Credit quality step 3	6 %
Credit quality step 4	15 %
Credit quality step 5	30 %
Credit quality step 6	50 %
Unrated	15 %
Defaulted	100 %

DRCb = max {(Σi ∈ long RWi · net JTDi) – WtS · (Σi ∈ short RWi · |net JTDi|); 0}

where:

DRCb	=	the own funds requirement for the default risk for bucket b;
---	---	---
i	=	the index that denotes an instrument belonging to bucket b;
---	---	---
RWi	=	the risk weight; and
---	---	---
WtS	=	a ratio recognising a benefit for hedging relationships within a bucket, which shall be calculated as follows: Image omitted; see official source

For the purposes of calculating the DRCb and the WtS, the long positions and short positions shall be aggregated for all positions within a bucket, regardless of the credit quality step to which those positions are allocated, to produce the bucket-specific own funds requirements for the default risk.

6. For the purposes of this Article, an exposure shall be assigned the credit quality category corresponding to the credit quality category that it would be assigned under the standardised approach for credit risk set out in Title II, Chapter 2.