Question ID
2015_2398
Legal act
Directive 2013/36/EU (CRD)
Topic
Supervisory reporting - Supervisory Benchmarking
Article
78
Paragraph
2
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
Draft RTS/ITS on benchmarking - Annex V
Name of institution / submitter
Association of Financial Markets in Europe (AFME)
Country of incorporation / residence
United Kingdom
Type of submitter
Industry association
Subject matter
Benchmarking exercise - market risk - clarifications on Annex V portfolios
Question

Annex V - portfolio 1.16 (Double no touch option): Not only is the option worthless, it also knocks out immediately given the current level of spot (1.13). For the 2014 exercise, the level of spot meant that the option was in-the-money at the time of trade entry, however, it appears that the barrier levels have not been updated. As a result, unless the barrier levels are updated, systems may not allow the trade to be booked (it ceases to exist). How should firms handle this? Annex V - portfolios 1.17 and 1.18. What is the underlying currency (which is different from the reference currency) of portfolios 1.17 and 1.18 for Commodity? Are the risk factors for these trades specified in USD or EUR? For example, are the oil put options priced using USD WTI (spot and volatility)? If priced using EUR risk factors, the trades will create cross currency basis risk which will need to be included in the VaR results.

Background on the question

Please see above

Submission date
Final answer
With regard to the barriers of portfolio 1.16 in Annex V of the Draft ITS on Supervisory Reporting for Institutions for benchmarking the internal approaches (ITS on benchmarking), no amendment is needed. The barriers are confirmed. If this trade is valued 0, institutions are requested to provide 0. If this cannot be priced, institutions should report nothing. The two commodity portfolios 1.17 and 1.18 of Annex V have USD as base currency. DISCLAIMER: 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, which may differ from the text of the draft ITS to which this Q&A relates.
Status
Archive
Answer prepared by
Answer prepared by the EBA.
Note to Q&A

Update 26.03.2021: This Q&A has not yet been reviewed by the EBA in the light of the most recent amendments to the ITS 2016/2070 on Supervisory Benchmarking.

Update 03.12.2021: This Q&A has been archived in the light of the most recent amendments to the ITS 2016/2070 on Supervisory Benchmarking.