Question ID:
2017_3450
Legal Act:
Regulation (EU) No 575/2013 (CRR)
Topic:
Market risk
Article:
340
Paragraph:
-
Subparagraph:
-
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:
Not applicable
Article/Paragraph:
-
Disclose name of institution / entity:
No
Type of submitter:
Individual
Subject Matter:
Calculation of general risk capital requirement for underwriting commitment regarding bond issuance and bond issuance programs under duration-based method specified in Article 340 of the CRR.
Question:

How should the capital requirement under duration-based calculation of general risk specified in Article 340 CRR be calculated where an institution is acting as an underwriter in bond issuance or bond issuance program? In particular, how to calculate the capital requirement before fixing of the coupon rate for bonds being issued and after that date?

Background on the question:

According to article 345 of the CRR, when an institution is acting as an underwriter, it is obliged to calculate capital requirements related to underwriting commitment since “working day zero” which is defined as the working day on which an institution becomes unconditionally committed to accepting a known quantity of securities at an agreed price. We would like to clarify whether an institution should calculate general risk capital requirement since fixing of the coupon rate for particular issuance of bonds or since entering into contract as an underwriter.

Date of submission:
10/08/2017
Published as Final Q&A:
19/01/2018
Final Answer:

In the case of the underwriting of debt instruments according to Article 345 CRR, institutions generally have to calculate own funds requirements from working day 0 onwards. Working day 0 is defined as “…the working day on which the institution becomes unconditionally committed to accepting a known quantity of securities at an agreed price.…”. In the case of bond issuances, a price is considered to be agreed if the coupon (fixed-rate instruments)/ reference rate (floating-rate instruments) has been fixed. No own funds requirements for interest rate risk according to 345 CRR in connection with Art. 339 and 340 CRR have to be calculated prior to the fixing of the coupon/reference rate, because there is no market risk.  

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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