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

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

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

• (c) 30 % of the matched weighted position in zone two;

• (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

Image omitted; see official source

where:

D	=	duration calculated according to the following formula: Image omitted; see official source where: R = yield to maturity; Ct = cash payment in time t; M = total maturity.

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.

Table 3

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).

• (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;

- (c) 150 % of the matched duration-weighted position between zones one 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.

3. Stock-index futures, the delta-weighted equivalents of options in stock-index futures and stock indices collectively referred to hereafter as ‘stock-index futures’, may be broken down into positions in each of their constituent equities. These positions may be treated as underlying positions in the equities in question, and may, be netted against opposite positions in the underlying equities themselves. Institutions shall notify the competent authority of the use they make of that treatment.

4. Where a stock-index future is not broken down into its underlying positions, it shall be treated as if it were an individual equity. However, the specific risk on this individual equity can be ignored if the stock-index future in question is exchange traded and represents a relevant appropriately diversified index.

Section 4 Underwriting

Article 345

Reduction of net positions

Table 4

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.

2. The institutions shall notify to the competent authorities the use they make of paragraph 1.

Section 5 Specific risk own funds requirements for positions hedged by credit derivatives

Article 346

Allowance for hedges by credit derivatives

• (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.

• (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

1. Without prejudice to other provisions in this Section, positions in CIUs shall be subject to an own funds requirement for position risk, comprising general and specific risk, of 32 %. Without prejudice to Article 353 taken together with the amended gold treatment set out in Article 352(4) positions in CIUs shall be subject to an own funds requirement for position risk, comprising general and specific risk, and foreign exchange risk of 40 %.

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

• (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.

• (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.

• (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

• (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;

• (c) irrevocable guarantees and similar instruments that are certain to be called and likely to be irrecoverable;

• (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

• (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.

5. Only the unmatched positions in currencies referred to in this Article shall be incorporated into the overall net open position in accordance with Article 352(4).

6. Where daily exchange-rate data for the preceding three or five years — occurring on equal and opposite positions in a pair of currencies over the following 10 working days show that these two currencies are perfectly positively correlated and the institution always can face a zero bid/ask spread on the respective trades, the institution can, upon explicit permission by its competent authority, apply an own funds requirement of 0 % until the end of 2017.

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

• (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

- (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.

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.

- (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

Table 1

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

• (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.

• (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

• (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.

Table 2

| | 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.

Table 1

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

- (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.

Table 2

Capital treatment for free deliveries

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

• (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.

4a. By way of derogation from paragraph 4 of this Article, an institution may choose to calculate the own funds requirements for CVA risk, using any of the approaches referred to in Article 382a(1), for the transactions that are excluded pursuant to paragraph 4 of this Article, where the institution uses eligible hedges determined in accordance with Article 386 to mitigate the CVA risk of those transactions. Institutions shall establish policies to specify the application and calculation of the own funds requirements for CVA risk for such transactions.

4b. Institutions shall report to their competent authorities the results of the calculations of the own funds requirements for CVA risk for all transactions referred to in paragraph 4 of this Article. For the purposes of that reporting requirement, institutions shall calculate the own funds requirements for CVA risk using the relevant approaches set out in Article 382a(1) that they would have used to satisfy an own funds requirement for CVA risk if those transactions were not excluded from the scope pursuant to paragraph 4 of this Article.

4c. For the purposes of paragraph 4, points (aa) and (b), the Commission may adopt, by way of implementing acts, and subject to the examination procedure referred to in Article 464(2), a decision as to whether a third country applies prudential supervisory and regulatory requirements at least equivalent to those applied in the Union.

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

• (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.

• (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.

• (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

• (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.

• (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.

- (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) 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.

• (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.

• (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.

• (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.

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.

• (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.

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 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.

• (a) counterparty credit spread risk;

• (b) reference credit spread risk; and

• (c) equity risk.

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.

Image omitted; see official source

Image omitted; see official source

where:

• k = the index that denotes the risk factor k;

• Image omitted; see official source = the weighted sensitivity of the aggregate CVA to risk factor k;

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

• Image omitted; see official source = the net sensitivity of the aggregate CVA to risk factor k;

• Image omitted; see official source = the weighted sensitivity of the market value of all eligible hedges in the CVA portfolio to risk factor k;

• Image omitted; see official source = the net sensitivity of the market value of all eligible hedges in the CVA portfolio to risk factor k.

Image omitted; see official source

Image omitted; see official source

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 .