C 32.02 - Prudent Valuation: Core approach (PRUVAL 2); column 0160 (IPV Difference) and C 32.03 - Prudent Valuation: Model Risk AVA (PRUVAL 3); column 0110 (IPV Difference Output Testing)) and C 32.04 - Prudent Valuation: Concentrated Positions AVA (PRUVAL 4); column 0100 (IPV Difference)

Question

What sign convention is expected for “IPV Difference” amounts in templates C32.02 (column 0160), C32.03 (column 0110) and C32.04 (column 0100)? Should validation rule v6341_m ({r0020} <= {r0010}, i.e. o/w Trading Book <= Total Core Approach) be modified to evaluate the absolute values in the equation?

European Banking Authority · Accepted Answer

According to Regulation (EU) No 575/2013, article 105(8), independent price verification is an additional process to daily mark-to-market/marking to model. It usually leads to different results. These results may be higher or lower than daily mark-to-market outcomes. Taking into account the instructions for column 0160 of template 32.02 (instructions regarding this topic for templates 32.03 and 32.04 are similar) of Part II of Annex II to Regulation (EU) No 680/2014 (ITS on supervisory reporting), positive or negative figures may be reported in this column, depending on whether IPV amounts are higher or lower than daily mark-to-market/marking to model data. In fact, there is no validation rule obliging to report templates C32.02 (column 0160), C32.03 (column 0110) and C32.04 (column 0100) as positive values. Regarding validation rule v6341_m, it could fail in some cases, for example, where IPVs from trading book are positive and IPVs from total are negative. Hence, validation rule v6341_m shall be amended.

C 32.02 - Prudent Valuation: Core approach (PRUVAL 2); column 0160 (IPV Difference) and C 32.03 - Prudent Valuation: Model Risk AVA (PRUVAL 3); column 0110 (IPV Difference Output Testing)) and C 32.04 - Prudent Valuation: Concentrated Positions AVA (PRUVAL 4); column 0100 (IPV Difference)

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