Is the definition of P&L, for template C108.00,
(i) the P&L Vector generated using historically simulated daily market price/risk factor movements; ie. the underlying daily P&L distribution used to derive VaR; or
(ii) instead, the actual P&L (adjusted for Theta, settled cash flows, etc)?
Template C 108.00 states that "Institutions that calculate VaR using Historical Simulation shall fill the one-year data series with the portfolio valuation change (i.e. daily P&L) produced on each business day (i.e. by comparing the end-of-day valuation on each business day reported in column 10 with the end-of-day valuation on the previous business day)."
Last year, our supervisors had specifically requested for the latter given the above wording can be interpreted as the actual P&L from MtM changes. However, the actual P&L poses the following problems:
The instructions on column 0020 (“Daily P&L”) of template C 108.00 of Annex VII to the
Draft Regulation (EU) 2016/2070 ITS on Supervisory Reporting for Institutions for benchmarking the internal approaches ( draft ITS on Supervisory Benchmarking) for the 2017-exercise as provided in Annex VI of that ITS foresee that:
‘Institutions that calculate VaR using
Hhistorical Ssimulation shall fill the full length historic series used by the institution, with a minimum of one-year data series with the portfolio valuation change (i.e. daily P&L) produced on each business day (i.e. by comparing the end-of-day valuation on each business day reported in column 010 with the end-of-day valuation on the previous business day).
In case a day is a bank holiday in the relevant jurisdiction, this cell shall be left blank (i.e. a zero P&L shall be reported only if there really was no change in the hypothetical value of the portfolio on a given business day).
Figures shall be reported in units in the base currency of the portfolio.’
This means that only banks that are using the Historical Simulation approach shall report this column and that they have to report the one-year daily P&L series used to derive regulatory VaR results.
The present Q&A on Supervisory reporting is provisional. It will be reviewed after the Implementing Regulation is in force and published in the Official Journal. The text of the Implementing Regulation may differ from the text of the draft ITS to which this Q&A refers.
Update 03.12.2021: This Q&A has been updated in the light of the most recent amendments to the ITS 2016/2070 on Supervisory Benchmarking.