We assume that an outflow should be reflected under Article 423 (4) of Regulation (EU) No 575/2013 (CRR) for any firm short currently covered using a client long position, unless the residual term of the borrowing of the client stock used to cover the short is contractually committed beyond 30 days.
Client stock used to cover firm shorts.
According to Article 423(4) of Regulation (EU) No. 575/2013 (CRR), institutions shall report an additional outflow corresponding to the market value of securities sold short and to be delivered within the 30 day horizon. However, if the institution has covered the short position by borrowing the identical security for a period that contractually and irrevocably exceeds 30 days remaining, and the securities do not form part of the institution’s liquid assets, the institution should not report an outflow.
Update 26.03.2021: This Q&A has been archived as the issue it deals with is addressed in Q&A 2013_355.