EBA · 2022_6620 Rejected question

Derivatives - Forward foreign-exchange contracts - RC under IFR

Regulation
Regulation (EU) No 2019/2033 (IFR)
Article
28, para. a
Topic
K-factor requirements
Submitted by
Investment firm
Submitted
2022-10-27
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Question

Under Article 28(a) for derivative contracts, RC is determined as the CMV, and according to Article 4 (36) current market value’ or ‘CMV’ means the net market value of the portfolio of transactions or securities legs subject to netting in accordance with Article 31, where both positive and negative market values are used in computing CMV By CMV (and than also RC) do you mean "net position" * "current exchange rate"?

Background

I am trying to calculate replacement cost of forward foreign-exchange contracts as written above, but it comes out extremely high value compared to CRR. Example:   Net position Currency Transaction value in base currency Market value Currency2 current exchange rate EUR/HUF Current Market value in base currency Maturity Replacement cost according to CRR buy 1,000,000 EUR 420,000,000 404,550,000 HUF 430 430,000,000 2022.10.13 -10,000,000 My interpretation is that CMV is „Current Market value in base currency” and according to IFR CMV=RC, so replacement cost is 430,000,000 HUF, while under CRR it would be -10,000,000 HUF. I would like to ask for clarification on whether I am misunderstanding it.
No answer published yet.

Original source: European Banking Authority, Q&A ID 2022_6620

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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