EBA · 2014_1255 Archive

Determining the exposure value for regular way securities transactions

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
429, para. 4 and 10
Topic
Leverage ratio
Submitted by
Consultancy firm
Submitted
2014-05-30
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

If settlement date accounting is employed in the recording of regular way securities transactions then there are no balance sheet entries between trade date and settlement date. In this case would the impact of unsettled transactions not be included in the exposure value?

Background

Article 429 of Regulation (EU) No 575/2013 (CRR): ... (2) The leverage ratio shall be calculated as an institution's capital measure divided by that institution's total exposure measure and shall be expressed as a percentage. (3) For the purposes of paragraph 2, the capital measure shall be the Tier 1 capital. (4) The total exposure measure is the sum of the exposure values of all assets and off-balance sheet items not deducted when determining the capital measure. Article 429 (5)(a) and 429(10) (off-balance sheet) states that the exposure values of assets excluding contracts listed in Annex II (derivatives) and credit derivatives, means exposure values in accordance with the first sentence of Article 111(1) which refers back to accounting value. Use of accounting value means no recognition under SD accounting.

Answer

Article 429(10) of Regulation (EU) 575/2013 (CRR) requires institutions to determine the exposure value of off-balance sheet items (subject to certain amendments specified under points (a) to (d) of Article 429(10)) in accordance with Article 111(1) of the CRR. Within Article 111(1) of the CRR, the exposure value of an off-balance sheet item listed in Annex I is specified in the second and third sentences, which do not refer to the accounting value, but to the nominal value of the off-balance sheet item. To the extent that a transaction has created an off-balance sheet item (between the trade date and settlement date), which falls under the scope of Annex I, it is to be treated according to Article 429(10) of the CRR.

Original source: European Banking Authority, Q&A ID 2014_1255

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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