- Question ID
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2014_841
- Legal act
- Regulation (EU) No 575/2013 (CRR)
- Topic
- Market risk
- Article
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274
- Paragraph
-
3
- COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
- Not applicable
- Article/Paragraph
-
0
- Type of submitter
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Credit institution
- Subject matter
-
Regulatory Add-on % for Inflations Swaps
- Question
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Should point 3 of Annex II (types of derivatives) have a title? Points 1 and 2 both have titles; it is inconsistent that point 3 has no title. Article 274 (3) makes reference to "contracts relating to commodities other than gold, referred to in point 3 of Annex II". What derivative types, as classified in table 1 in the article, does point 3 cover? This ambiguity leads me to ask should an Inflation swaps linked to RPI index, be treated as an 'Interest rate' contract or a 'Commodity' Contract? Given the current wording of point 3, Annex II suggests that Inflation swaps should be treated as Interest Rate contracts, they are of a similar nature to interest rate contracts.
- Background on the question
-
Fully explained in text of question.
- Submission date
- Final answer
-
An inflation swap linked to Retail Prices Index (RPI) is a swap which involves an exchange of interest calculated by reference to the RPI and another reference rate.
This transaction can be considered an interest-rate contract because it involves the real interest rate (i.e. the interest rate net of inflation).
Accordingly, an inflation swap has to be treated as an interest-rate contract for the determination of PFE with the Mark-to-Market method according to Article 274(2) of Regulation (EU) No. 575/2013.
- Status
-
Archive
- Answer prepared by
-
Answer prepared by the EBA.
- Note to Q&A
-
Update 16.09.2021: This Q&A has been archived in light of the change(s) in Article 274 to Regulation (EU) No 575/2013 (CRR), applicable from 28.06.2021.
