Application of article 378 for free delivery transactions

In accordance with Article 378 of Regulation (EU) No 575/2013 (CRR), in the case of transactions in which debt instruments, equities, foreign currencies and commodities excluding repurchase transactions and securities or commodities lending and securities or commodities borrowing are unsettled after their due delivery dates, an institution shall calculate the price difference to which it is exposed. The price difference is calculated as the difference between the agreed settlement price for the debt instrument, equity, foreign currency or commodity in question and its current market value, where the difference could involve a loss for the credit institution. This defined price difference implies that the institution has not made its payment for debt instruments, equities, foreign currencies or commodities before receiving them, while the institution remains exposed to the mentioned price difference, which should be capitalised in accordance with Article 378 CRR. On the contrary, in accordance with Article 379 of the CRR a transaction qualifies as a free delivery if the institution has paid for securities, foreign currencies or commodities before receiving them, or it has delivered securities, foreign currencies or commodities before receiving payment for them. It follows that transactions that qualify as free deliveries in accordance with Article 379 CRR are not expected to be subject to own funds requirements for settlement/delivery risk set out in Article 378 CRR. Nevertheless, transactions that fall under Article 379 of the CRR should be subject to capital requirements for both the value transferred plus the current positive exposure, as envisaged by paragraph 3 of Article 379 of the CRR. In addition, neither Article 378 nor Article 379 mention delivery-versus-payment (DvP) transactions or non-delivery-versus-payment (non-DvP) transactions, hence these transactions should be subject to those Articles depending on whether they meet their respective requirements. In this regard, while DvP transactions may not be expected to qualify as free deliveries and be subject to Article 379 CRR thanks to their settlement mechanism which should ensure the simultaneous exchange of the payment for the asset to be received, non-DvP transactions could fall under Article 378 of the CRR in case the institution did not yet make its payment or delivery to the counterparty, and the transaction is still unsettled after its due delivery date.