The question concerns the application of the requirement in Art. 325u(4)(c) CRR in cases where there is not a simple 1:1 relationship be-tween instruments in a back-to-back arrangement, including scenarios where the notional amounts are different. The underlying question is whether two perfectly offsetting (‘mirroring’) positions may only be ex-empted if there is a 1:1 relationship between the corresponding instruments, or whether – more generally – also two mirroring positions result-ing from two groups of instruments that are identical in all aspects other than the notional (i.e., the position size) can be (partially) exempted. In the latter case, it concerns a ‘partial’ exemption in regard to the two groups of instruments, since only the ‘overlapping’ notional may be off-set; that is, the offsetting might cover only a fraction of one of the instru-ments involved (as illustrated below).

The proposed answer follows the latter idea and concludes that allowing exclusion of the overlapping notional is permissible under the condition that the market risk of the excluded mirroring positions is perfectly offset. This interpretation aligns the treatment under the own funds requirements for residual risks with the economic reality of a back-to-back hedge where the market risk of two groups of positions is perfectly offset.