Question ID
2025_7650
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Market risk
Article
383d
Paragraph
2
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
n.a.
Type of submitter
Credit institution
Subject matter
Foreign Exchange Vega Risk Factors Definition
Question

Shall the foreign exchange vega risk factors to be applied by institutions to instruments in the CVA portfolio sensitive to foreign exchange volatility be the implied volatilities of foreign exchange rates between the contractual currency pairs (i.e., no triangulation with respect to the institution’s reporting currency is required)?

Background on the question

Article 383d(2) requires that "The foreign exchange vega risk factors to be applied by institutions to instruments in the CVA portfolio sensitive to foreign exchange volatility shall be the implied volatilities of foreign exchange rates between the currency pairs referred to in paragraph 1.", where currency pairs referred to in paragraph 1 are "foreign exchange rates between the currency in which an instrument is denominated and the institution’s reporting currency...". The requirement to "triangulate" FX vega sensitivities is not in line with market standards and FRTB-related Article 325q(2) where all currency pairs are allowed "The foreign exchange vega risk factors to be applied by institutions to options with underlyings that are sensitive to foreign exchange shall be the implied volatilities of exchange rates between currency pairs".

Submission date
Rejected publishing date
Rationale for rejection

This question has been rejected because the issue it raises is beyond the remit of the Q&A process and as such it cannot be addressed via a Q&A. The objective of the Q&A tool is not to answer questions that put into doubt the correctness of the legal framework, seek a modification of the legal framework or would require such a modification in order to address the question.
 

Status
Rejected question