- Question ID
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2015_1903
- Legal act
- Regulation (EU) No 575/2013 (CRR)
- Topic
- Market risk
- Article
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306
- Paragraph
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1
- Subparagraph
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a
- COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
- Not applicable
- Article/Paragraph
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Not applicable
- Type of submitter
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Competent authority
- Subject matter
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Calculation of exposure values of trade exposures with QCCP in accordance with article 306(1)(a).
- Question
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How should institutions calculate exposure value of trade exposures with QCCP for purposes of article 306(1)(a)?
- Background on the question
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Article 306(1)(a) provides that an institution shall apply a risk weight of 2% to the exposure values of all its trade exposures with QCCPs. On one hand, article 306(3) provides that an institution shall calculate exposure values of its trade exposures with a CCP in accordance with Sections 1 to 8 of this Chapter, as applicable. On the other hand, in accordance with Article 4(1)(91): “trade exposure” means a current exposure, including a variation margin due to the clearing member or to the client, but not yet received, and any potential future exposure of a clearing member or a client, to a CCP arising from contracts and transactions listed in points (a) to (e) of Article 301(1), as well as initial margin. In context of the abovementioned articles, it is not clear, if exposure value of trade exposures with QCCP for purposes of article 306(1)(a) shall include: (1) Only exposure values of trade exposures calculated in accordance with one of the methods for calculating the exposure values mentioned in article 273 - according to article 306(3). In such case, assuming that institution calculates exposure value in accordance with article 274 (mark to market method), exposure calculation reflects current exposure (represented by current replacement cost) and potential future credit exposure. (2) Only current exposure, including a variation margin due to the clearing member or to the client, but not yet received, and any potential future exposure of a clearing member or a client, to a CCP arising from contracts and transactions listed in points (a) to (e) of Article 301(1), as well as initial margin - according to definition in article 4(1)(91). In such case, it is not clear how current exposure and potencial future exposure should be calculated. The value of initial margin, which also forms a part of trade exposure definition already reflects potential future exposure arising from such contracts and transactions. The value of variation margin, which also forms a part of trade exposure definition already reflects current exposure arising from such contracts and transactions. Method mentioned in point (1) as well as method mentioned in point (2) take into account both current exposure and potential future exposure, however method mentioned in point (1) is based on institutions internal calculations in accordance with provisions of CRR and method mentioned in point (2) is based mostly on actual book value of exposure to CCP.
- Submission date
- Final publishing date
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- Final answer
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Article 306(1)(a) of Regulation (EU) No 575/2013 (CRR) provides the treatment for trade exposures with qualifying central counterparties (QCCPs): 'an institution...shall apply a risk weight of 2% to the exposure values of all its trade exposures with QCCPs'.
A definition of 'trade exposures', which are the scope of the treatment for receiving a 2% risk weight, is given in Article 4(1)(91) of the CRR : ' "trade exposure" means a current exposure, including a variation margin due to the clearing member or to the client, but not yet received, and any potential future exposure of a clearing member or a client, to a CCP arising from contracts and transactions listed in points (a) to (e) of Article 301(1), as well as initial margin'.
The method to compute the exposure value for the trade exposures is given in Article 306(3) of the CRR: 'An institution shall calculate exposure values of its trade exposures with a CCP in accordance with Sections 1 to 8 of this Chapter, as applicable.'
Therefore, the exposure value of trade exposures with QCCPs for the purposes of Article 306(1)(a) of the CRR should be computed in the same way as for transactions to other counterparties for which the exposure value should be calculated according the counterparty credit risk framework.
- Status
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Final Q&A
- Answer prepared by
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Answer prepared by the EBA.
- Note to Q&A
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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.