Liquid assets underlying sold call options

The use of bonds as a hedge against the potential obligation to deliver these assets due to the sale of a respective bond option is neither a hedging strategy referred to in Article 8(5) of the Commission Delegated Regulation (EU) 2015/61 nor does it violate the general and operational requirements according to its Articles 7(2), 8(2) and 8(3). Hence, the sale of the bond option has no implications for the eligibility of the underlying assets to the stock of liquid assets. However, the bank must ensure that the potential liquidation of the asset will not conflict with any internal business or risk management strategies. The liquidation of the asset must not lead to a breach of internal limits on open risk positions. According to Article 30(4) of the Commission Delegated Regulation (EU) 2015/61, the bank shall take into consideration outflows and inflows expected over 30 calendar days from the contracts listed in Annex II of Regulation (EU) No 575/2013. In the case of sold call options which are exercisable within 30 calendar days an expected outflow should be considered as the positive difference between the market value of the underlying and the strike price of the option, if the option is expected to be cash settled, or as the positive difference between the liquidity value calculated according to Article 9 of the Commission Delegated Regulation (EU) 2015/61 of the underlying asset and the strike price of the option, if the option is expected to be subject to physical delivery. In case those differences resulted negative (strike price is higher than the liquidity value), no inflow should be considered since it would be contingent and not recognisable in the LCR following Article 32(1) of the Commission Delegated Regulation (EU) 2015/61.