Question ID:
2013_589
Legal Act:
Regulation (EU) No 575/2013 (CRR)
Topic:
Market risk
Article:
359
Paragraph:
2
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:
Not applicable
Article/Paragraph:
CRR 359
Disclose name of institution / entity:
No
Type of submitter:
Industry association
Subject Matter:
Own funds requirements for commodities risk
Question:

Article 359(2) of Regulation (EU) No. 575/2013 states: “Positions in the same commodity may be offset and assigned to the appropriate maturity bands on a net basis for the following: (a) positions in contracts maturing on the same date; (b) positions in contracts maturing within 10 days of each other if the contracts are traded on markets which have daily delivery dates.” A Fair Value Option is applied to the positions in the Banking Book. The positions are hedged “back-to-back” in terms of cash flows that are exactly offsetting each other and represent thus a perfect economic hedge. Due to discounting effects positions are not however perfectly netted in terms of market values, and thus in terms of net delta weighted equivalents. Does that still mean that the institution shall assign zero values to all the maturity bands in the Table 1 referring to the Maturity ladder approach, or must the netted cash deltas be assigned to each the maturity band instead?

Background on the question:

A Fair Value Option is applied to the positions in the Banking Book. The positions are hedged “back-to-back” in terms of cash flows that are exactly offsetting each other and represent thus a perfect economic hedge. Due to discounting effects positions are not however perfectly netted in terms of market values, and thus in terms of net delta weighted equivalents. We are not sure how we shall interpret the maturity ladder approach for the back-to-back hedged commodity positions.

Date of submission:
29/11/2013
Published as Final Q&A:
30/04/2014
Final Answer:

In accordance with Article 359 of Regulation (EU) No. 575/2013, the institution shall assign netted cash deltas to each of the maturity bands.

Status:
Final Q&A
Answer prepared by:
Answer prepared by the EBA.
Note to Q&A:

Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR) and continues to be relevant.

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