EBA · 2015_2382 Archive

Counterparty credit risk

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
274, para. 2
Topic
Market risk
Submitted by
Credit institution
Submitted
2015-10-08
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

Our Institution has entered into an Equity Option Swap, by which receives the 'Floating Amount' and pays, in the termination date, the 'Equity Amount'. Our Institution receives quarterly cash-flows linked to Euribor 3 months, and at maturity will pay a payoff linked to a basket of listed stocks. This type of Swap classifies as an interest rate on or an equity one under the Article 274 of Regulation EU 575/2013 (CRR), regarding the couterparty credit risk? Being so, we would like your confirmation that for counterpart risk capital calculations, this swap classifies as an interest rate one, considering that our risk is only regarding the 'Floating Amount'.

Background

Under the Article 274 CRR, institutions shall multiply the notional amounts or underlying values, as applicable, by the percentages in Table 1, and those are higly different between interest rate swaps and contracts concerning equities.

Answer

Given the nature and features of the equity option swap described in the question, this instrument should be treated as an equity contract (column 'contracts concerning equity') for the application of Article 274 of Regulation EU 575/2013 (CRR).

Original source: European Banking Authority, Q&A ID 2015_2382

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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