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)
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 78(1) last subparagraph Regulation (EU) No 575/2013 (CRR) 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 Article 78(1) last subparagraph CRR which is, according to Q&A 2014_1352 [as originally published on 8 July 2014] , required to be deducted pursuant to Article 28(2) of Delegated Regulation (EU) No 241/2014 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 and of total outstanding Additional Tier 1 instruments or Tier 2 instruments 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

Submission date
Final publishing date
Final answer

[The original text of the question refers to provisions on market making that were previously included in Commission delegated regulation 241/2014 (RTS) and that have been deleted from this delegated regulation to be transferred directly into Regulation (EU) No 575/2013 (CRR)]

 

The second subparagraph of Article 78(1) of Regulation (EU) No 575/2013 (CRR) provides that “The general prior permission shall be granted for a certain predetermined amount, which shall be set by the competent authority. […] In the case of Additional Tier 1 or Tier 2 instruments that predetermined amount shall not exceed 10% of the relevant issue and shall not exceed 3% of the total amount of outstanding Additional Tier 1 or Tier 2 instruments, as applicable”.

These provisions do not include any reference to grandfathered or amortised part of instruments, while they explicitly refer to the total outstanding amount of the instruments.

For the purposes of calculating the 10% of the relevant issue, one shall use the outstanding notional amount of the instrument as of the application by the issuer for a general prior permission referred to in the second subparagraph of Article 78(1) of the CRR. Therefore, if the issuer has called, redeemed, repaid 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 3% of the total amount of outstanding Additional Tier 1 or Tier 2 instruments, one shall use the outstanding notional amount of all instruments as of the application by the issuer for a general prior permission referred to in the second subparagraph of Article 78(1) of the CRR. Therefore, if the issuer has called, redeemed, repaid 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.

For the sake of completeness, for the purpose of calculating the 10% of the total amount of outstanding eligible liabilities instruments referred to in Article 32b(5) of Delegated Regulation (EU) No 241/2014, one shall use the outstanding notional amount of all instruments as of the application by the issuer for the purpose of a general prior permission as referred to in the second subparagraph Article 78a(1) CRR. Therefore, if the issuer has called, redeemed, repaid or repurchased part of the instruments between the issue dates and the application by the issuer, the 10% amount will be applied to the total notional amount of all instruments then outstanding.

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.

Update 14.02.2023: the Q&A has been reviewed and the changes are highlighted in mock track changes.

Update 09.06.2023: the Q&A has been reviewed in the light of the changes introduced by Commission Delegated Regulation (EU) No 2023/827 laying down regulatory technical standards amending Delegated Regulation (EU) No 241/2014. As a result, only the disclaimer that was introduced on 14.02.2023 in the “EBA answer" section has been deleted.

Disclaimer

The Q&A refers to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.