Specific Wrong-Way risk (SWWR) – Identification and treatment with respect to transactions referencing a basket of names or an index

At which level should the analysis of the correlation between the counterparty´s PD and its future exposure as requested by Article 291(1)(b) CRR be carried out?

Article 291 CRR suggests that the identification is meant to be at transaction level; however, future exposure exists also at the level of each netting set and at the level of the aggregated total counterparty credit risk exposure for the counterparty.          It is not clear if institutions are allowed to apply a materiality threshold in order to identify SWWR according to Article 291(1)(b) CRR, e.g. in cases where the counterparty is one of the constituents of an index or basket underlying the transaction. When SWWR is identified according to Article 291(1)(b) CRR and when there exists a legal connection between the counterparty and (at least) one of the constituents of an index or basket of names underlying the transaction that is identified as carrying SWWR, how should the treatment described in Article 291(5)(a) CRR be understood? Does the complete transaction need to be excluded from the netting set? Alternatively, is it acceptable to synthetically decompose the transaction into one component with SWWR and one component without SWWR and then only exclude the component with SWWR from the netting set? Regarding the exposure calculation according to Article 291(5)(e) CRR: Which metric should be used in order to assess “if material” in Article 291(5)(e) CRR?                                         If the result of the materiality assessment in Article 291(5)(e) CRR is “not material”, which method should be used to calculate the exposure of the transaction? The method used regularly, i.e. for transactions without SWWR and legal connection?                                                     At what frequency is the routine of the correlation analysis under Article 291(1)(b) and, if applicable, the materiality assessment according to Article 291(5)(e) CRR required?  Different practices with respect to the above mentioned topics were observed in the industry. In addition, it is not fully clear, if the aim of the materiality assessment in Article 291(5)(a) CRR is meant to overrule the general regulation of Article 291(1)(b) CRR in the case of index or basket transactions.