Commission Implementing Regulation (EU) 2024/348 of 19 January 2024 amending the implementing technical standards laid down in Commission Implementing Regulation (EU) 2016/2070 as regards benchmark portfolios, reporting templates and reporting instructions for the reporting referred to in Article 78(2) of Directive 2013/36/EU of the European Parliament and of the Council

C 105.01 –   Definition of internal models

The information in column 0140 may be omitted.

C 105.02 –   Mapping of internal models to portfolios

C 105.03 –   Mapping of internal models to countries

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ANNEX IV

‘ANNEX V

MARKET RISK BENCHMARK INSTRUMENTS AND PORTFOLIOS

Section 1:   Instructions

• (a) For the purposes of this Annex, the following shall apply:

• (i) ‘booking date’ means the date and time on which institutions book the transactions for the purposes of the benchmarking exercise;

• (ii) ‘Initial Market Valuation (IMV)’ means the marked-to-market value of the instruments referred to in Section 2 of this Annex, at the IMV reference date and time;

• (iii) ‘IMV reference date’ means the date and time with reference to which institutions shall determine the IMV of the transactions in the benchmarking portfolio;

• (iv) ‘IMV remittance date’ means the date by which institutions shall submit the results of the IMV of the transactions in the benchmarking portfolio;

• (v) ‘VaR’ means the Value at Risk;

• (vi) ‘sVaR’ means the Stressed Value at Risk;

• (vii) ‘IRC’ means the Incremental Risk Charge;

• (viii) ‘CTP’ means the Correlation Trading Portfolio;

• (ix) ‘APR’ means the All Price Risk calculated in accordance with Article 377(2) of Regulation (EU) No 575/2013;

• (x) ‘Risk Measures’ (RM) means the value of the VaR, sVaR, and when required IRC and APR for the portfolios, as set out in Section3 of this Annex, between the RM initial and RM final reference date;

• (xi) ‘RM initial reference date’ means the date on which institutions shall start to compute the RM values;

• (xii) ‘RM final reference date’ means the date on which institutions shall finish to compute the RM values;

• (xiii) ‘RM remittance date’ means the date by which institutions shall submit the results of the RM of the transactions in the benchmarking portfolio;

• (xiv) ‘Present Value (PV)’ means the marked-to-market value of the portfolios, set out in Section 3 of this Annex, at the RM final reference date;

• (xv) ‘ATM’ means ‘At The Money’ in terms of the relative position of the current or future price of a derivative’s underlying asset with respect to the strike price of that derivative;

• (xvi) ‘OTM’ means ‘Out of The Money’ in terms of the relative position of the current or future price of a derivative’s underlying asset with respect to the strike price of that derivative;

• (xvii) ‘ITM’ means ‘In The Money’ in terms of the relative position of the current or future price of a derivative’s underlying asset with respect to the strike price of that derivative;

• (xviii) ‘long’ means ‘bought’ and ‘short’ means ‘sold’;

• (xix) ‘CDS’ means Credit Default Swaps;

• (xx) for CDS, ‘long’ means ‘bought protection’ and ‘short’ means ‘sold protection’;

• (xxi) ‘MLN’ means millions;

• (xxii) ‘OTC’ means Over-The-Counter;

• (xxiii) ‘ASA’ means the alternative standardised approach as referred to in Part Three, Title IV, Chapter 1a, Section 1 of Regulation (EU) No 575/2013;

• (xxiv) ‘SBM’ means the Sensitivities-Based Method as referred to in Part Three, Title IV, Chapter 1a, Section 2 of Regulation (EU) No 575/2013;

• (xxv) ‘DRC’ means the Default Risk requirement as referred to in Part Three, Title IV, Chapter 1a, Section 5 of Regulation (EU) No 575/2013;

• (xxvi) ‘RRAO’ means the Residual Risk Add-On as referred to in Part Three, Title IV, Chapter 1a, Section 4 of Regulation (EU) No 575/2013.

• (b) The following dates shall apply for the ‘benchmarking’ exercise:

• (i) the booking date shall be 14 September 2023;

• (ii) the IMV (and initial SBM) reference date shall be 21 September 2023 (at 5:30 pm CET);

• (iii) the IMV (and initial SBM) remittance date shall be 13 October 2023;

• (iv) the RM initial reference date shall be 15 January 2024;

• (v) the RM (and final ASA) final reference date shall be 26 January 2024;

• (vi) the RM (and final ASA) remittance date shall be 01 March 2024.

• (c) Unless explicitly specified otherwise in Section 2 of this Annex, all positions shall be booked on the booking date referred to in point (b)(i) of this Section. Once positions have been booked, each portfolio shall age for the duration of the benchmarking exercise and shall be calculated under the assumption that the institution does not take any action to manage the portfolio in any way during the entire period of the benchmarking exercise. Unless explicitly stated otherwise in the specifications for a particular instrument, strike prices for option positions shall be determined relative to prices for the underlying as observed at market close on the booking date.

• (d) For the purposes of the initial market valuation, the valuation of each instrument shall be submitted to the institution’s competent authority by the IMV remittance date. By that date, the institution shall submit an explanatory note accompanying the results, in accordance with point (e). IMV shall be provided in accordance with the institution’s front office valuation, where possible. In case IMVs are not provided by the institution’s front office, the institution shall specify in the explanatory note who is the IMV data source provider.

• (e) The explanatory note that institutions are to submit together with the IMV shall include all of the following for each instrument:

• (i) the risk factors used to calculate the instrument’s IMV;

• (ii) the pricing model used to calculate the instrument’s IMV and a description of this pricing model;

• (iii) the risk factors included in the VaR model for the instrument;

• (iv) the risk factors included in the VaR model that are also valuation inputs for the IMV of the instrument;

• (v) the VaR model specifics in relation to the instrument;

• (vi) available reference data for the instrument in the institution’s own format;

• (vii) the aspects referred to in points (h), (i), (l), (n), (o), (p), (w), (x), (z), (hh) and (ll) of this Section.

• (f) For the purposes of point (e), sub point (v), all of the following shall be reported:

• (i) concise VaR model descriptions;

• (ii) revaluation methods applied;

• (iii) functional form applied for modelling of returns (such as absolute, relatives, other methods;

• (iv) qualitative information on the time series used to calibrate the VaR model in relation to the instrument (such as source, methodology for normalisation, buckets applied, other information deemed relevant by the institutions to explain the results provided).

• (g) The explanatory note referred to in point (d) shall be updated with each resubmission of any value, reflecting the changes between submissions. The explanatory note shall contain one section which lists all submission dates and the reasons for resubmissions.

• (h) The risks of the positions shall be calculated without taking into account the funding costs. Where applicable, institutions shall use the overnight rate of the instrument currency as the discount rate. Collateral agreement shall be considered in place for the derivatives instruments referred to in Section 2 of this Annex. Where that is not possible, reasons shall be provided in the explanatory note referred to in point (d).

• (i) Counterparty credit risk and credit valuation adjustment (‘CVA’) risk shall not be taken into account in the valuation of the risks of the portfolios. Where that is not possible, reasons shall be provided in the explanatory note referred to in point (d) of this Section. Institutions shall report cases where other typologies of Valuation Adjustments are included in the IMV and explain for each financial instrument the methodology and the impact in the explanatory note referred to in point (d) of this Section.

• (j) The 10-day 99 % VaR shall be calculated on a daily basis. sVaR and the IRC may be calculated on a weekly basis. The sVaR and IRC shall be based on end-of-day prices for each Friday in the time window of the benchmarking exercise.

• (k) For transactions that include long positions in CDS, institutions shall assume an immediate up-front fee is paid to enter the position as per the market standards and conventions. The maturity date for all CDS shall correspond to conventional quarterly termination dates.

• (l) Additional specifications needed in order to carry out pricing calculations required for CDS positions shall be consistent with commonly used market standards and conventions and shall be explained in the explanatory note referred to in point (d) of this Section.

• (m) The maturity date shall ensure that the transaction is closest to the term-to-maturity specified in accordance with market standards and conventions.

• (n) With respect to the details of instruments not referred to in Section 2 of this Annex, institutions shall provide the assumptions that have been used, including the day count convention and the choice for a tradable and liquid instrument, where permitted, along with the results in the explanatory note referred to in point (d) of this Section.

• (o) Institutions that believe that assumptions in addition to those specified in this Section are relevant to the interpretation of the results of its exercise, including close of business timing, coupon rolls, mapping against indices and others, shall submit a description of those assumptions in the explanatory note referred to in point (d) of this Section.

• (p) The explanatory note referred to in point (d) of this Section shall include explanations for risks not captured by the model for the instruments referred to in Section 2 of this Annex.

• (q) All options shall be treated as if they are traded OTC, unless explicitly specified otherwise.

• (r) The standard timing conventions for OTC options shall be followed. The time to maturity for an ‘n-month’ option shall be in n months. Where options expire on a non-trading day, institutions shall adjust the expiration date per business date, in accordance with market standards and conventions.

• (s) All OTC options shall be treated as follows:

• (i) as American for single name equities and commodities;

• (ii) as European for equity indices, foreign exchange and swaptions.

• (t) All OTC options shall be considered ‘naked’ so that the premium shall be excluded from the initial market valuation.

• (u) Regarding the CTPs, institutions that have permission to use the APR model for CTPs shall provide details about their most relevant assumptions, market standards and conventions regarding the CTP instruments referred to in Section 2 of this Annex, including the hedge ratios they have calculated to make the CTP instruments CS01 neutral at the booking date.

• (v) The IMV for each instrument shall be provided in the EBA instrument currency specified in Section 2 of this Annex for that instrument.

• (w) For portfolios composed of one or more instruments denominated in EBA instrument currencies that are different from the EBA portfolio currency, the result shall be converted into the reported EBA portfolio currency using the ECB spot exchange rate of the relevant date. The converted result shall be explained in the explanatory note referred to in point (d) of this Section.

• (x) When booking positions, institutions shall follow appropriate market conventions, unless otherwise specified in these instructions in the Instruments descriptions (Section 2 of this Annex).

• (y) Where an instrument, or the underlying instrument for a derivative, is subject to a corporate action that affects the benchmarking exercise, such as a call from the issuer, a default or similar actions, institutions shall exclude such instrument from the exercise together with any related CDS or option.

• (z) With regard to an index series, ‘on-the-run’ shall refer to the most liquid and tradable series of that index available in the market. Institutions shall explain their choice of ‘on-the-run’ series along with the related results in the accompanying explanatory note referred to in point (d) of this Section.

• (aa) Where not specified otherwise, institutions shall apply the EU Benchmarks Regulation for the interest rate in order to book the instruments specified in Section 2 of this Annex. Institutions shall specify the rate applied, apart from the ones specified in Section 2 of this Annex, in the explanatory note referred to in point (d) of these instructions.

• (bb) Risk measures for the portfolios referred to in Section 3 and Section 4 of this Annex, together with the Present Value, shall be computed from the ‘RM initial reference date’ to the ‘RM final reference date’. SBM, DRC and RRAO shall be computed for the ‘RM final reference date’. Institutions shall submit the results of those calculations to their competent authority by RM remittance date. IMV and SBM shall be reported for each instrument. Risk measures, SBM, DRC, RRAO and Present Value, where applicable, shall be reported for each portfolio, both individual and aggregated. SBM, DRC and RRAO, where applicable, shall be reported at least for the same portfolios for which risk measures are reported.

• (cc) For the portfolios referred to in Section 6 of this Annex, institutions shall report SBM results and submit them in line with the reporting dates of the RM submission.

• (dd) Only institutions which have been granted permission to model specific risk of debt instruments shall report credit spread portfolios. For interest rate portfolios which include risk as part of certain instruments, individual and aggregated portfolios shall be modelled by institutions which have been granted the permission to model the general interest risk as well as institutions which have been granted the permission to model the general and the specific interest risk.

• (ee) The results for both individual and the aggregated portfolios shall be submitted only where the results of the instruments that are part of them are also being submitted.

• (ff) In Section 2 of this Annex (Instruments), ‘Year T’ shall mean ‘2024’ and Year T + X shall mean 2024 + X, with X as specified in Section 2.

• (gg) In Section 2 of this Annex (Instruments), institutions shall determine the day of expiry/maturity in accordance with the following instructions:

• (i) Where the date is specified, that specific date shall be used;

• (ii) Where no date is specified, market convention, where available, shall be used. If for example there is a market convention that the day of expiry/maturity is the 3rd Friday of the month, then ‘June Year T’ shall mean the 3rd Friday of the month of the year T;

• (iii) At the end of the month, where it is specified ‘End of’, it shall mean the last calendar day in the month;

• (iv) For a fix period of time following the ‘booking date’, if the period is defined as a number of days, it is the last day of the period. If the period is defined in weeks, months or years, it is the same day of the following week, month or year with respect to the booking date, or, if the last month or year of the period is shorter, the last day of that month or year; if the ‘booking date + x period’ is a holiday day, then select the following working day;

• (v) In case it is not specified otherwise the following assumptions shall be used: Day count convention: Act/360, Holiday calendar: Target2.

• (hh) In Section 2 of this Annex (Instruments), for all CDS, unless explicitly specified otherwise, the following requirements shall apply:

• (i) Coupon frequency: Quarterly;

• (ii) Coupon(bps): 100;

• (iii) Day count: ACT/360;

• (iv) ISDA Definitions year: 2014;

• (v) Restructuring clause: Modified-Modified Restructuring (MMR);

• (vi) Maturity: December Year T+4;

• (vii) Debt type: Senior;

• (viii) Tenor: 5 Year;

• (ix) Effective date as booking date;

• (x) The used discount curve and recovery rate shall be indicated in the explanatory note referred to in point (d) of this Annex.

• (ii) The IMV of bond instruments shall include accrued interest.

• (jj) Institutions shall provide the information related to the time of valuation of the PV mentioning the time in the explanatory note referred to in point (d) of this Section. Where possible, valuation of the PV shall be computed at close of business day.

• (kk) The risk measures of the portfolios shall be calculated in the same currency of the portfolio currency, not including any FX Risk, also related to the reporting currency of the institutions. The FX Risk shall be considered only when intrinsically included in the instruments. Where both reporting and portfolio currency results are reported as part of the exercise, for the ASA figures, results calculated in the reporting currency of the institution shall be translated into the EBA portfolio currency by spot conversion using the ECB spot exchange rate associated with the date of the calculation. The translation into the EBA portfolio currency does not imply a change in the FX risk factors.

• (ll) Where Article 325q(7) of Regulation (EU) No 575/2013 (“base currency” approach) applies, when performing SBM calculations and reporting SBM sensitivities, institutions shall consider the FX risk factors resulting from the application of the base currency approach. The reported values shall not be expressed in the chosen base currency but rather in the institutions’ reporting currency by applying spot conversion using the ECB spot exchange rate associated with relevant date.

Section 2:   Instruments

Institutions shall provide IMV, in accordance with the instructions laid down in Section 1 of this Annex, for the following financial instruments:

EQUITY

IR

FX

COMMODITIES

CREDIT SPREAD