- Regulation
- Directive 2013/36/EU (CRD)
- Article
- 78, para. 2
- Topic
- Supervisory reporting - Supervisory Benchmarking
- Submitted by
- Industry association
- Submitted
- 2015-11-09
- Answer provided by
- ESAs (EBA, ESMA, EIOPA)
Question
Portfolio 1.5 (equity variance swap) - In the formula for realised variance in Annex V, the summation index i goes from 1 to n-1. That is not how standard booking works, where the index should start at 0 not 1. Portfolio 1.15 (knock-out currency option) - In the table (page 5) of Annex V it states 'cash settled' while in appendix 2.4 it states that settlement = deliverable which we interpret as physically settled. Could you clarify? Also which currency to settle in if it is settled in cash? Portfolio 1.18 (oil put option) - Annex V is somewhat ambiguous on which contract month to use for the underlying (currently we use Feb16) and to set the strike (currently we use May16). Could you confirm? Portfolio 1.10 (Contradiction between general instructions and term sheet) - Under trade 1.10 “Seller of an OTC receiver swaption” - there is ambiguity whether the premium should be included or excluded from the valuation. The term sheet requires premium as payable at expiry although the general regulatory instructions indicate that premiums should be excluded. Can you please clarify how premiums should be treated? Portfolios 1.10, 1.30 and 1.32 - Can you please confirm whether the swaption #10 should be booked as cash settled or physically settled? Portfolio 1.20 - When firms calculate the IMV on the 26th Oct, do they have to use the same FX rates as of the 15th Oct to convert the USD bond to EUR? Same question applies for the VaR calculation in December. Common instructions - Should firms assume LDN close unless explicitly stated when market data were referenced (e.g. “strike = 3m forward exchange rate as end of day 15 Oct 2015") given that evaluation time is LDN close? Common instructions - Reporting currency - For templates covered by Annex V, firms are asked to disclose positions against EUR, USD etc. In terms of the instrument/position-booking values, are the EBA expecting firms to provide in the actual transaction currency requested i.e. EUR, USD etc or should they convert to local (for instance for UK headquartered firms to GBP)? Firms currently submit all existing CoRep returns in local currency (GBP) as systems used by national authorities only accept local base currency (GBP) values. If firms must submit in local currency, will the EBA take care of the conversion?
Answer
The portfolios in question of Annex V of the Draft ITS on Supervisory Reporting for Institutions for benchmarking the internal approaches (ITS on benchmarking) should be considered as follows: 1) Portfolio 1.5: The summation index i goes from 1 to (n-1) because in the formula the ratio is S(i+1)/S(i) with S(1) …. S(n) where n is the number of working days until maturity. 2) Portfolio 1.15: Cash settlement hence settlement non-deliverable. The base currency is EUR as reported. 3) Portfolio 1.18: Please stick to the Annex V portfolio instructions. The underlying is the oil spot price. 4) Portfolio 1.10: Please stick to the Annex V portfolio instructions where it is reported that premium is paid at expiry and cash settled. 5) Portfolio 1.10, 1.30 and 1.32: Cash settled as reported in the Annex V portfolio instructions. 6) As a general instruction and especially for portfolio 1.20, for the positions denominated in a common currency but composed by one or more instruments denominated in different currencies, the IMV shall be converted in the common portfolio base currency using the appropriate FX spot at the end of the booking date (15 October 2015). Profit & Loss, Risk and Stressed Measures (VaR, sVaR, IRC, etc.) follow accordingly. Please, stick to each stated portfolio currency as reported in Annex V. 7) As a common instruction, Banks should follow appropriate market convention when booking all positions if not specified otherwise (i.e. unless explicitly stated). Therefore, Banks should assume LDN close where it is appropriate and not specified otherwise. 8) Results shall be reported in the portfolio base currency, reported in the Annex V for each market trade and portfolio, irrespective of the reporting currency of the firm. DISCLAIMER: The present Q&A on Supervisory reporting is provisional. It will be reviewed after the Implementing Regulation is in force and published in the Official Journal, which may differ from the text of the draft ITS to which this Q&A relates.
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.