Version in force , Modified +1,156 −8§
Amended by Regulation (EU) 2021/424 32021R0424 on EUR-Lex (external, EUR-Lex)
Explanation, written by a model and checked against the cited text
Points (a) and (b) of paragraph 2 now exclude from the stated own funds requirements the risks arising from exotic underlyings of instruments referred to in point (a) of Article 325u(2), and point (b) is also changed from limiting instruments without optionality to only the delta-risk requirement to instead making them subject to that requirement subject to the same exotic-underlying exclusion.
A new paragraph 3 is added allowing an institution to choose, by way of derogation from point (b) of paragraph 2, to subject positions of instruments without optionality to the requirements in points (a) and (c) of paragraph 1, and this paragraph sets out notification steps to the competent authority for starting and stopping use of that approach.
Cited: Art. 325e, v2 (external, EUR-Lex)
v1 is the previous version, v2 this one.
Text from EUR-Lex, before and after
Previous version, in force 28 June 2021 02013R0575-20210629 → this version, in force 30 September 2021 02013R0575-20210930
Article 325e
Components of the sensitivities-based method
1. Institutions shall calculate the own funds requirement for market risk under the sensitivities-based method by aggregating the following three own funds requirements in accordance with Article 325h:
(a) own funds requirements for delta risk which capture the risk of changes in the value of an instrument due to movements in its non-volatility related risk factors;
(b) own funds requirements for vega risk which capture the risk of changes in the value of an instrument due to movements in its volatility-related risk factors;
(c) own funds requirements for curvature risk which capture the risk of changes in the value of an instrument due to movements in the main non-volatility related risk factors not captured by the own funds requirements for delta risk.
2. For the purpose of the calculation referred to in paragraph 1,
(a) all the positions of instruments with optionality shall be subject to the own funds requirements referred to in points (a), (b) and (c) of paragraph 1; 1 for the risks other than exotic underlyings of the instruments as referred to in point (a) of Article 325u(2);
(b) all the positions of instruments without optionality shall only be subject to the own funds requirements referred to in point (a) of paragraph 1. 1 for the risks other than exotic underlyings of the instruments as referred to in point (a) of Article 325u(2).
For the purposes of this Chapter, instruments with optionality include, among others: calls, puts, caps, floors, swap options, barrier options and exotic options. Embedded options, such as prepayment or behavioural options, shall be considered to be stand-alone positions in options for the purpose of calculating the own funds requirements for market risk.
For the purposes of this Chapter, instruments whose cash flows can be written as a linear function of the underlying's notional amount shall be considered to be instruments without optionality.3. By way of derogation from point (b) of paragraph 2, an institution may choose to subject all the positions of instruments without optionality to the own funds requirements referred to in points (a) and (c) of paragraph 1.
An institution that chooses to use the approach set out in the first subparagraph shall notify its competent authority thereof at least three months before the first use. After those three months have elapsed and provided that the competent authority has not objected, the institution may use that approach until the competent authority informs the institution that it is no longer permitted to do so.
An institution that wishes to stop using the approach set out in the first subparagraph shall notify its competent authority thereof at least three months before stopping that use. The institution may stop applying that approach, unless the competent authority has objected within that three-month period.