EBA · 2016_2692 Final Q&A

Position Risk Own Funds Requirement for options positions on CIUs

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
348, 350, para. 1
Topic
Market risk
Submitted by
Credit institution
Submitted
2016-03-31
Answered
2016-11-11
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

Is there an own funds requirement for the non-delta risk of options on Collective Investment Undertakings which are treated for position risk in accordance with Article 348 of Regulation (EU) No 575/2013 (CRR)?

Background

Articles 348-350 CRR set out the own funds requirements for positions in CIUs. Article 348 CRR states that CIUs are subject to an own funds requirement for position risk, comprising specific and general risk, of 32%. Therefore those CIUs which cannot be looked through in accordance with Article 350 CRR will be subject to this own funds requirement for position risk of 32%. As the underlying investments of the CIU may be made across several sectors, it is not possible to equate them to a single classification such as equity, commodity, etc. The EBA FINAL draft Regulatory Technical Standards "On non-delta risk of options in the standardised market risk approach under Articles 329(3), 352(6) and 358(4) of Regulation (EU) No 575/2013 (Capital Requirements Regulation -CRR)" references 4 types of underlyings (Interest Rates, Equities, Foreign Exchange and Gold, Commodities) but does not reference CIUs.

Answer

When the approaches set out in Article 350 of Regulation (EU) No 575/2013 (CRR) (look-through approaches and other) are not applied, a percentage of 32% or 40% should be applied to comprehensively calculate the own funds requirements for CIU positions pursuant to Article 348 CRR. In that case no additional treatment is required for position risk of CIU in the trading book, contrary to the cases of the look-through approach and other approaches referred to in Article 350 CRR where positions in CIUs shall be treated as positions in the underlying investment of the CIUs. Therefore, the RTS on non-delta risk of options in the standardised market risk approach does not apply to positions treated under Article 348 CRR.

Original source: European Banking Authority, Q&A ID 2016_2692

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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