Where do own funds requirements for non-delta risks related to non-continuous options have to be reported, if the institution applies the delta plus approach?
According to Article 4 (3) of the RTS on non-delta risk of options in the standardised market risk approach, the own funds requirements for non-delta risks related to non-continuous options or warrants are calculated without distinction between gamma and vega risk under the delta-plus approach.
However, the relevant reporting templates MKR SA TDI, MKR SA EQU, MKR SA FX and MKR SA COM require such a distinction as there are only two separate rows (‘delta plus approach - additional requirements for gamma risk’ and ‘delta plus approach - additional requirements for vega risk’) and no row for the total of own funds requirements according to delta plus approach.
The ITS on reporting does not contain any provision on the reporting requirements for non-continuous options. Further guidance is necessary to ensure comparability of reported data.
Article 4 (3) of Regulation (EU) No 528/2014 (RTS on non-delta risk of options, RTS) does not require institutions to distinguish gamma and vega risk components if an institution applies the delta plus method for determining the own funds requirements for non-delta risks of non-continuous options and warrants. Furthermore, according to the method provided by Article 4(3) of this RTS, it is not possible to exactly identify vega and gamma components.
On the other hand, Regulation (EU) No 680/2014 (ITS on Supervisory Reporting) requires institutions to respect the validation rules v0004_h, v0005_h, v0006_h and v0007_h.
In the light of that, if an institution applies the delta plus approach to non-continuous options or warrants, it shall report ‘pro forma’ the capital requirement for non-delta risks linked to these exposures equally distributed (50% and 50%) between rows ‘Delta plus approach - additional requirements for gamma risk’ and ‘Delta plus approach - additional requirements for vega risk’ in the relevant templates (i.e. C 18.00, C 21.00, C 22.00 and C 23.00 of Annex I to the ITS on Supervisory Reporting, as applicable).