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  1. Home
  2. Single Rulebook Q&A
  3. 2020_5517 Calculation of specific risk own funds requirement for hedges by credit derivatives under Article 346 (4) CRR
Question ID
2020_5517
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Market risk
Article
346
Paragraph
4
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
Not applicable
Type of submitter
Credit institution
Subject matter
Calculation of specific risk own funds requirement for hedges by credit derivatives under Article 346 (4) CRR
Question
Would be applicable the 80% offset stated in article 346(4) for the calculation of the specific risk own funds requirement of a hedged bond by an standardised credit derivative traded in a recognised exchange in case the maturity of the credit derivative is equal or higher to the bond maturity due to the standarization of the derivative.
Background on the question
Article 346(4) CRR allows the application of an 80% offset in the calculation of the specific risk own funds requirement of a hedged position by a credit derivative when several conditions are met. These conditions include that the values of the two legs always move in the opposite direction and there is an exact match in terms of the reference obligation, the maturity of both the reference obligation and the credit derivative, and the currency of the underlying exposure. In addition, key features of the credit derivative contract shall not cause the price movement of the credit derivative to materially deviate from the price movements of the cash position. To the extent that the transaction transfers risk, an 80 % specific risk offset could be applied to the side of the transaction with the higher own funds requirement, while the specific risk requirements on the other side shall be zero. In the event that the hedged position is a bond position hedged by an standardised credit derivative traded in a recognised and regulated exchange with the following features: the same Reference Entity as the bond, the same Ranking Pari passu, with a nominal amount at least equal to that of the bond, the same currency of the bond position, a standardised IMM maturity equal or higher to the bond maturity and with the following credit events for the activation of the credit protection: bankruptcy, failure to pay and restructuring, we conclude that the conditions established in Article 346 (4) are met.
Submission date
25/09/2020
Rejected publishing date
31/05/2022
Rationale for rejection

This question has been rejected because the issue it deals with is already explained or addressed in Article 346(4) of Regulation (EU) No 575/2013 (CRR).  

For further information on the purpose of this tool and on how to submit questions, please see “Additional background and guidance for asking questions” 

Status
Rejected question

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