Question ID:
2015_2095
Legal Act:
Regulation (EU) No 575/2013 (CRR)
Topic:
Own funds
Article:
77
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:
Regulation (EU) No 241/2014 - RTS for Own Funds requirements for institutions
Article/Paragraph:
29(3)
Disclose name of institution / entity:
Yes
Name of institution / submitter:
ECB-SSM
Country of incorporation / residence:
Germany
Type of submitter:
Competent authority
Subject Matter:
Predetermined amount for market making with partially grandfathered or amortised instruments
Question:
An institution has asked for advance permission according to Article 29(3) of Commission Delegated Regulation (EU) No 241/2014 (RTS on own funds) to carry out repurchases of its own funds instruments for market making purposes. It intends to repurchase up to 3% of the nominal amount of these instruments. Some of these instruments are partially phased-out ("grandfathered" instruments) or already partially amortised. 1. What is in this case the predetermined amount for the limits in points (a) and (b) of Article 29(3) RTS on own funds which is, according to Q&A 2014_1352, required to be deducted pursuant to Article 28(2) RTS on own funds from the moment the authorisation is granted? (a) 3% of the nominal amount of the instruments (i.e. including phased-out/amortised amounts), or (b) solely 3% of the amount still qualified for own funds (i.e. excluding phased-out/amortised amounts) 2. Do in this case the amounts of the relevant issuance [Article 29(3)(a)(1) and (b)(1) RTS on own funds] and of total outstanding Additional Tier 1 instruments or Tier 2 instruments [Article 29(3)(b)(2) RTS on own funds] refer to (a) the full nominal amount (i.e. including phased-out/amortised amounts), or (b) solely the amount still qualified for own funds (i.e. excluding phased-out/amortised amounts)? 3. If solely the amount still qualified for own funds is considered for the predetermined amount or the limits, what is the maximum amount that the institution can repurchase?
Background on the question:
Assumed the institution intends to carry out repurchases for market making up to EUR 3 000 Tier 2 instruments (outstanding amount of this issuance is EUR 100 000 prior amortisation, no other Tier 2 instruments are outstanding) for which the first year of last five years has just passed (four years left to maturity). Article 64 of Regulation (EU) No 575/2013 (CRR) restricts in this case inclusion into Tier 2 items to about 80% of the nominal amount of this instrument which is about EUR 80 000; i.e. about EUR 20 000 of this instrument is already treated as amortised and no longer included in Tier 2 items. By what amount will own funds be reduced? (a) EUR 3 000 (b) 80% * EUR 3 000 = EUR 2 400
Date of submission:
06/07/2015
Published as Final Q&A:
05/02/2016
EBA Answer:

Article 29(3)(b) of the Commission Delegated Regulation (EU) No 241/2014 ("RTS") provides that "In the case of a repurchase of [...] Additional Tier 1 instruments or Tier 2 instruments for market making purposes, competent authorities may give their permission [...] for a certain predetermined amount. [...] For Additional Tier 1 instrument or Tier 2 instruments that predetermined amount shall not exceed the lower of the following amounts: (1) 10% of the amount of the relevant issuance; (2) or 3% of the total amount of outstanding Additional Tier 1 instruments or Tier 2 instruments, as applicable".

Article 29(3) of the RTS does not mention any reference to a grandfathered or amortised part of instruments and subparagraph (b)(2) of that Article explicitly refers to the outstanding amount of the instruments.

For the purposes of calculating the amount referred to in Article 29(3)(b)(1) of the RTS, one shall use the outstanding notional amount of the instrument as of the application by the issuer for an authorisation to repurchase Additional Tier 1 instruments or Tier 2 instruments for market making purposes. Therefore, if the issuer has reduced, redeemed or repurchased part of the instrument between the issue date and the application by the issuer, the 10% amount will be applied to the total notional amount of the instrument then outstanding.

Similarly, for the purposes of calculating the amount referred to in Article 29(3)(b)(2) of the RTS, one shall use the outstanding notional amount of all instruments as of the application by the issuer for an authorisation to repurchase Additional Tier 1 instruments or Tier 2 instruments for market making purposes. Therefore, if the issuer has reduced, redeemed or repurchased parts of the instruments between the issue dates and the application by the issuer, the 3% amount will be applied to the total notional amount of all instruments then outstanding.

Status:
Final Q&A
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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