K-CON own fund requirements

Article 39 of Regulation (EU) 2019/2033 (IFR) sets out the methodology to calculate K-CON own funds requirement. The K-CON are calculated on the exposure value excess referred to in Article 39(1) of the IFR. The exposure value excess is based on the calculation set out in Article 37(2) of the IFR.   The following example provides the methods for the calculation of K-CON according to Article 39(1)(b) of the IFR. Assuming an excess exposure to a trading book instrument subject to K-NPR that has persisted for more than 10 business days, the following data are provided: Total own funds of the investment firm (Total OF) = 1,000 Exposure Limit “L” (25% of own funds) according to Article 37(1) of the IFR = 250 Exposure value (EV) according to Article 36 of the IFR = 750 Exposure value excess (EVE) according to Article 37(2) of the IFR = (750 – 250) = 500 ; [EV – L] Exposure value excess as a percentage of own funds (EVE %) according to Table 6 of Article 39 of the IFR = 500 / 1,000 = 50% ; [EVE / Total OF ] OFR (own funds requirement on the trading book exposure assuming a risk weight of 8% according to Article 336 of Regulation (EU) 575/2013) = (750 x 8%) = 60  Own funds requirement for the excess (OFRE) according to Article 39(2) of the IFR = (60/750) x 500 = 40 ; (OFR/EV) x EVE Apportionment of OFRE according to the table in Article 39(2) of the IFR: since the value of EVE % is 50%, the apportionment of OFRE should be performed up to the factor tranche “from 40% to 60%”.  Factor tranche per table 6 of Article 39 of the IFR OFRE allocation K-CON own funds requirement Up to 40% 1.000 ×min(50%,40%)-(1.000 ×0%)500×40=32 In general terms: Total OF ×min⁡(EVE%,  40%)-(Total OF × 0%)EVE×OFRE  32 x 200% = 64 From 40% to 60% 1.000 ×min⁡(50%,60%)-(1.000 ×40%)500×40=8 In general terms: Total OF ×min⁡(EVE%,  60%)-(Total OF ×40%)EVE×OFRE   8 x 300% = 24 Total K-CON own funds requirement   64 + 24 = 88