EBA · 2022_6604 Rejected question

Size of the position to calculate concentrated position AVA

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
14, para. 1
Topic
Market risk
Submitted by
Credit institution
Submitted
2022-10-10

Question

Should the volume corresponding to a 10-day prudent exit period be subtracted from the size of the concentrated position to estimate concentrated position AVA?

Background

Article 14 says that to calculate concentrated positions AVA there is a three-step approach. After a concentrated valuation position is identified, when a market price is available for the size of the valuation position, a prudent exit period shall be estimated. If the prudent exit period exceeds 10 days, AVA shall be estimated as explained in Article 14.1(c). Clarification is needed to confirm what is the final amount concentrated position AVA shall be estimated on. Article 14.1(c) rules that AVA should be estimated when it takes more than 10 days to be free of the position, taking into account average daily volume, the typical daily trading volume of the institution, and a cap to daily trading volume to avoid an impact on the market price of the position. In our opinion, this guideline also implies that, taking into account the same mentioned volume restrictions, if an institution hypothetical exit strategy on that position takes 10 days or less therefore there is no need for concentrated position AVA calculation. In the sight of this, we would like to clarify if concentrated position AVA should be therefore estimated for the volume that would be part of a hypothetical exit strategy going from the eleventh day, to the number of days of the prudent exit period.
No answer published yet.

Original source: European Banking Authority, Q&A ID 2022_6604

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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