EBA · 2013_185 Archive

Firm shorts covered by client longs

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
423, para. 4
Topic
Liquidity risk
Submitted by
Credit institution
Submitted
2013-08-27
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

We assume that an outflow should be reflected under Article 423 (4) of Regulation (EU) No 575/2013 (CRR) for any firm short currently covered using a client long position, unless the residual term of the borrowing of the client stock used to cover the short is contractually committed beyond 30 days.

Background

Client stock used to cover firm shorts.

Answer

According to Article 423(4) of Regulation (EU) No. 575/2013 (CRR), institutions shall report an additional outflow corresponding to the market value of securities sold short and to be delivered within the 30 day horizon. However, if the institution has covered the short position by borrowing the identical security for a period that contractually and irrevocably exceeds 30 days remaining, and the securities do not form part of the institution’s liquid assets, the institution should not report an outflow.

Original source: European Banking Authority, Q&A ID 2013_185

This Q&A is published by European Banking Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.

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