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Austrian Federal Economic Chamber, Division Bank and Insurance

The proposed categories are sufficiently clear and comprehensive.
The methodologies are clear and comprehensive, although in some cases overly conservative. Specifically, the approach proposed in Article 6 in the cases where no look through to single underlyings is possible, is overly conservative.
At the same time, it has to be pointed out that the implementation costs associated with the technical standard are significant. Especially for institutions with smaller trading books and/or lesser involvement in derivatives trading with bond and equity underlyings, the incremental impact from including indirect exposures will be negligible in the context of large exposures. Such institutions however will have to bear the full implementation cost of the proposed methodology. In our view, for such institutions thresholds for the applicability of this technical standard should be introduced. The thresholds can be based on a quantification of derivative indirect exposures on a periodic basis, e.g. a quantification methodology similar to the one followed by EBA in the cost-benefit analysis of the RTS can be adopted. Such an approach will alleviate the implementation effort for institutions where indirect exposures are negligible and will be in line with the proportionality principle.
In addition, as pointed out in Paragraph 40 of the ITS and with reference to implementation costs, the interaction with the gross JTD framework under FRTB needs to be carefully considered. In our view, an early adoption of the approaches proposed in this technical standard has limited benefits if the methodology will be amended by the JTD framework in 2023.
Furthermore it would be helpful if the relevant reporting positions in the Large Exposure templates C 28.00 and C 29.00 would be clearly defined for these indirect exposures.

The methodology is sufficiently clear and conceptually sound.
Our Members generally do not have options allocated to the non-trading book.
n.a.
and reasoning.
Assuming that “market value” refers to fair value, i.e. theoretical valuation based on models and non-observable risk factors is acceptable, we do not think such cases will be of practical consideration.
The methodology is sufficiently clear and conceptually sound.
Generally yes. It would be helpful if the EBA could specify if CDS indices are in scope of this article, and if yes, detail their treatment. We assume that we don’t have to consider an indirect exposure where institutions act as buyers of credit protection. We do not see a loss (an exposure) in these cases if the CDS-underlying defaults.
The methodology is clear but a more detailed description of the treatment of the most relevant types of derivatives (e.g. the once listed in Article 5(1) will be helpful.
The fallback approach appears to be equivalent in quantitative terms to the decomposition approach in Article 5 for the relevant instruments in our portfolio.
The proposed treatment is conceptually sound if look through to individual positions in the index/CIU is possible, even if the practical implementation of the approach is challenging (e.g. an OTM option on a diversified index will result in negligible incremental indirect exposures but will pose significant data and processing requirements). The approach is likely to result in a multitude of individually insignificant exposures, potentially to counterparties with whom the organization does not have any direct exposures.
In our view the proposed approach is more suited to instruments with limited number of underlyings as detailed in Article 6(3). In the case where no lookthrough is available or practical, the proposed approach is overly conservative. In particular the requirement that the exposure should be quantified assuming all underlying names default simultaneously is not realistic, especially for diversified indices or CIUs. The effect of this proposal is that exposures towards the unknown client would easily become material since they will reflect the full exposure against underlyings without lookthrough. In our view, an alternative approach for handling these exposures is needed, e.g. an approach where a certain percentage of the total value of the underlying is assumed to default, or where for diversified indices/CIUs, the 0.25 threshold for assigning to the unknown client is significantly increased.
In our view the proposed approach is best suited to underlying reference names which do not constitute a structure.
Dr. Franz Rudorfer
A