Commission Delegated Regulation (EU) 2021/424 of 17 December 2019 amending Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to the alternative standardised approach for market risk (Text with EEA relevance)

‘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.’;

1 Institutions shall perform the calculations laid down in paragraph 2 for each risk factor of the instruments subject to the own funds requirement for curvature risk, except for the risk factors referred to in paragraph 3. For a given risk factor, institutions shall perform those calculations on a net basis across all the positions of the instruments subject to the own funds requirement for curvature risk that contain that risk factor.

2 For a given risk factor k included in one or more instruments referred to in paragraph 1, institutions shall calculate the upward net curvature risk position of that risk factor () and the downward net curvature risk position of that risk factor () as follows: where: ithe index that denotes all the positions of instruments referred to in paragraph 1 and including risk factor k;xkthe current value of risk factor k;Vi (xk)the value of instrument i as estimated by the pricing model of the institution based on the current value of risk factor k;the value of instrument i as estimated by the pricing model of the institution based on an upward shift of the value of risk factor k;the value of instrument i as estimated by the pricing model of the institution based on a downward shift of the value of risk factor k;the risk weight applicable to risk factor k determined in accordance with Section 6;sikthe delta sensitivity of instrument i with respect to risk factor k, calculated in accordance with Article 325r.

3 By way of derogation from paragraph 2, for curves of risk factors that belong to the general interest rate risk (GIRR), credit spread risk (CSR) and commodity risk classes, institutions shall perform the calculations laid down in paragraph 6 at the level of the entire curve instead of at the level of each risk factor that belongs to the curve. For the purposes of the calculation referred to in paragraph 2, where xk is a curve of risk factors allocated to the GIRR, CSR and commodity risk classes, sik shall be the sum of the delta sensitivities to the risk factor of the curve across all tenors of the curve.

4 In order to determine a bucket-level own funds requirement for curvature risk, institutions shall aggregate, in accordance with the following formula the upward and downward net curvature risk positions, calculated in accordance with paragraph 2, of all the risk factors assigned to that bucket in accordance with Subsection 1 of Section 3: where: bthe index that denotes a bucket of a given risk class;Kbown funds requirements for curvature risk for bucket b; ; ; ; pklthe intra-bucket correlations between risk factors k and l as prescribed in Section 6;k, lthe indices that denote all the risk factors of instruments referred to in paragraph 1 that are assigned to bucket b;()the upward net curvature risk position;()the downward net curvature risk position.

5 By way of derogation from paragraph 4, for the bucket-level own funds requirements for curvature risk of bucket 18 of Article 325ah, of bucket 18 of Article 325ak, of bucket 25 of Article 325am and of bucket 11 of Article 325ap the following formula shall be used:

6 Institutions shall calculate the risk-class own funds requirements for curvature risk (RCCR) by aggregating all the bucket-level own funds requirements for curvature risk within a given risk class as follows: where: b, cthe indices that denote all the buckets of a given risk class that corresponds to instruments referred to in paragraph 1;Kbown funds requirements for curvature risk for bucket b; ; ; γbcthe inter-bucket correlations between buckets b and c as set out in Section 6.

7 The own funds requirement for curvature risk shall be the sum of the risk class own funds requirements for curvature risk calculated in accordance with paragraph 6 across all risk classes to which at least one risk factor of the instruments referred to in paragraph 1 belongs.’;

1 Institutions shall use a look-through approach for index and other multi-underlying instruments in accordance with the following: (a) for the purposes of calculating the own funds requirements for delta and curvature risk, institutions shall consider that they hold individual positions directly in the underlying constituents of the index or other multi-underlying instruments, except for a position in an index included in the ACTP for which they shall calculate a single sensitivity to the index; (b) institutions are allowed to net the sensitivities to a risk factor of a given constituent of an index instrument or other multi-underlying instrument with the sensitivities to the same risk factor of the same constituent of single name instruments, except for positions included in the ACTP; (c) for the purposes of calculating the own funds requirements for vega risk, institutions may either consider that they directly hold individual positions in the underlying constituents of the index or other multi-underlying instrument, or calculate a single sensitivity to the underlying of that instrument. In the latter case, institutions shall assign the single sensitivity to the relevant bucket as set out in Subsection 1 of Section 6 as follows: (i) where, taking into account the weightings of that index, more than 75 % of constituents in that index would be mapped to the same bucket, institutions shall assign the sensitivity to that bucket and treat it as a single-name sensitivity in that bucket; (ii) in all other cases, institutions shall assign the sensitivity to the relevant index bucket.

2 By way of derogation from point (a) of paragraph 1, institutions may calculate a single sensitivity to a position in a listed equity or credit index for the purposes of calculating the own funds requirements for delta and curvature risks provided the listed equity or credit index meets the conditions set out in paragraph 3. In that case, institutions shall assign the single sensitivity to the relevant bucket as set out in Subsection 1 of Section 6 as follows: (a) where, taking into account the weightings of that listed index, more than 75 % of constituents in that listed index would be mapped to the same bucket, that sensitivity shall be assigned to that bucket and treated as a single-name sensitivity in that bucket; (b) in all other cases, institutions shall assign the sensitivity to the relevant listed index bucket.

3 Institutions may use the approach set out in paragraph 2 for instruments referencing a listed equity or credit index where all of the following conditions are met: (a) the constituents of the listed index and their respective weightings in that index are known; (b) the listed index contains at least 20 constituents; (c) no single constituent contained within the listed index represents more than 25 % of the total market capitalisation of that index; (d) no set comprising one tenth of the total number of constituents of the listed index, rounded up to the next integer, represents more than 60 % of the total market capitalisation of that index; (e) the total market capitalisation of all the constituents of the listed index is no less than EUR 40 billion.

4 An institution shall use, consistently over time, only the approach set out in paragraph 1 or the approach set out in paragraph 2 for all the instruments that reference a listed equity or credit index that meets the conditions set out in paragraph 3. An institution shall require prior permission from the competent authority before switching from one approach to another.

5 For an index or other multi-underlying instrument, the sensitivity inputs for the calculation of delta and curvature risks shall be consistent, irrespective of the approaches used for that instrument.

6 Index or multi-underlying instruments which bear other residual risks as referred to in Article 325u(5) shall be subject to the residual risk add-on referred to in Section 4.

1 An institution shall calculate the own funds requirements for market risk of a position in a CIU using one of the following approaches: (a) where an institution is able to obtain sufficient information about the individual underlying exposures of the CIU, the institution shall calculate the own funds requirements for market risk of that CIU position by looking through to the underlying positions of the CIU as if those positions were directly held by the institution; (b) where the institution is not able to obtain sufficient information about the individual underlying exposures of the CIU, but the institution has knowledge of the content the mandate of the CIU and daily price quotes for the CIU can be obtained, the institution shall calculate the own funds requirements for market risk of that CIU position by using one of the following approaches: (i) the institution may consider the position in the CIU as a single equity position allocated to the bucket “other sector” in Table 8 of Article 325ap(1); (ii) upon permission from its competent authority, an institution may calculate the own funds requirements for market risk of the CIU in accordance with the limits set in the CIU’s mandate and relevant law; (c) where the institution meets neither the conditions in point (a) nor (b), the institution shall allocate the CIU to the non-trading book. An institution that uses one of the approaches set out in point (b) shall apply the own funds requirement for the default risk set out in Section 5 of this Chapter and the residual risk add-on set out in Section 4 of this Chapter where the mandate of the CIU implies that some exposures in the CIU shall be subject to those own funds requirements. An institution that uses the approach set out in point (ii) of point (b) may calculate the own funds requirements for counterparty credit risk and own funds requirements for credit valuation adjustment risk of derivative positions of the CIU, using the simplified approach set out in paragraph 3 of Article 132a.

2 By way of derogation from paragraph 1, where an institution has a position in a CIU that tracks an index benchmark so that the annualised return difference between the CIU and the tracked index benchmark over the last 12 months is below 1 % in absolute terms, ignoring fees and commissions, the institution may treat that position as a position in the tracked index benchmark. An institution shall verify compliance with that condition when the institution enters into the position and, after that, at least annually. However, where data for the last 12 months are not fully available, an institution may, subject to permission from the institution’s competent authority, use an annualised return difference from a period shorter than 12 months.

3 An institution may use a combination of the approaches referred to in points (a), (b) and (c) of paragraph 1 for its positions in CIUs. However, an institution shall use only one of those approaches for all the positions in the same CIU.

4 For the purposes of point (b) of paragraph 1, an institution shall carry out the calculations under the following provisions: (a) for the purposes of calculating the own funds requirement under the sensitivities-based method set out in Section 2 of this Chapter, the CIU shall first take position to the maximum extent allowed under its mandate or relevant law in the exposures attracting the highest own funds requirements set out under that Section and shall then continue taking positions in descending order until the maximum total loss limit is reached; (b) for the purposes of the own fund requirements for the default risk set out in Section 5 of this Chapter, the CIU shall first take position to the maximum extent allowed under its mandate or relevant law in the exposures attracting the highest own funds requirements set out under that Section and shall then continue taking positions in descending order until the maximum total loss limit is reached; (c) the CIU shall apply leverage to the maximum extent allowed under its mandate or relevant law, where applicable. The own funds requirements for all positions in the same CIU for which the calculations referred to in the first subparagraph are used shall be calculated on a stand-alone basis as a separate portfolio using the approach set out in this Chapter.

5 An institution may use the approaches referred to in point (a) or (b) of paragraph 1 only where the CIU meets all the conditions set out in Article 132(3) and point (a) of Article 132(4).’;

The correlation parameter γbc shall apply to the aggregation of sensitivities between different buckets. It shall be set in relation to the buckets of Table 8 in Article 325ap as follows: (a) 15 % where the two buckets fall within bucket numbers 1 to 10; (b) 0 % where either of the two buckets fall within bucket number 11; (c) 75 % where the two buckets fall within bucket number 12 and 13; (d) 45 % otherwise.

Risk weights for sensitivities to commodity risk factors shall be the following: Table 9 Bucket numberBucket nameRisk weight1Energy — solid combustibles30 %2Energy — liquid combustibles35 %3Energy — electricity and carbon trading60 %4Freight80 %5Metals — non-precious40 %6Gaseous combustibles45 %7Precious metals (including gold)20 %8Grains and oilseed35 %9Livestock and dairy25 %10Softs and other agricultural commodities35 %11Other commodities50 %’

This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. It shall apply from 30 September 2021.