EBA publishes final draft technical standards on non-delta risk of options in the standardised market risk approach

The European Banking Authority (EBA) published today final draft Regulatory Technical Standards (RTS) on non-delta risk of options in the standardised market risk approach. The standards will be part of the Single Rulebook aimed at enhancing regulatory harmonisation in the banking sector in the European Union (EU).

These RTS define a range of methods to reflect, in the own funds requirements, all the risks, other than delta risk, in a manner proportionate to the scale and complexity of institutions' activities in options and warrants. The EBA's proposal implements the Basel II framework which provides for the following methods: (i) a simplified approach to be applied only by institutions that buy options; (ii) the delta-plus method that can be also applied by institutions that sell options; and (iii) the scenario approach that is more sophisticated and addressed to institutions dealing with a considerable trading activity in options. In addition, for certain non-standard options, a new conservative treatment is introduced.

Legal basis and next steps

The EBA has developed these final draft RTS in accordance with Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (colloquially known as Capital Requirements Regulation or CRR).

The final draft standards have been sent today to the European Commission for their adoption as EU Regulations that will be directly applicable throughout the EU.