Disclosures Relating to Trading and Non-Trading Book Clients

When firms calculate exposure value in line with K-TCD, firms carry it out at client level, taking the replacement cost and PFE for each client and each product.  Firms then net exposures against collateral in line with Article 31 of IFR.   Assuming that an appropriate netting agreement is in place with the client, available collateral is deducted to arrive an exposure value for each client. Where clients have both trading book and non-trading book exposures, and the netting agreement in place provides that the collateral held is fungible i.e. there is no particular collateral assigned to the trading book or non-trading book contracts or transactions, for the above reporting schedules a methodology to apply the collateral between trading book and non-trading book exposures is required.

We would like to draw attention to the guidance (Annex II Reporting for Investment Firms Other Than Small and Non-Interconnected) with respect to Regulation  (EU)  2019/2033 (‘IFR’) and the reporting for the following schedules that detail the top client exposures:. IF 08.05 Trading Book Exposures IF 08.06 Non-trading Book Exposures & Off Balance Sheet   The EBA guidelines require “exposures” to be reported in these schedules but the term exposure is not specifically defined.  In our opinion, the logical definition of “exposures” is the Exposure Value as defined in Article 27 of IFR i.e. the K-TCD approach to exposure. Can you please confirm.   If that is the case, the differentiation between Trading Book and Non-Trading Book required by the above reporting schedules presents complications.  A client of a firm may have an exposure to both the trading book and non-trading book, given the contracts and transactions entered into with that client.