- Question ID
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2017_3120
- Legal act
- Regulation (EU) No 575/2013 (CRR)
- Topic
- Market risk
- Article
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327
- Paragraph
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1
- COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
- Not applicable
- Article/Paragraph
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-
- Type of submitter
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Investment firm
- Subject matter
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Netting between depositary receipts and underlying equities
- Question
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With regards to the equities and depositary receipts (DRs) issued is the net position in a combination of equity and related DR determined by taken into account the existence, availability and direction of the conversion programme?
- Background on the question
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In Article 327of CRR in determination of the net position in the instrument it is stated that “The absolute value of the excess of an institution's long (short) positions over its short (long) positions in the same equity, debt and convertible issues and identical financial futures, options, warrants and covered warrants”.
For instance, if a conversion programme exists and there are no restrictions (such as only cancellation of DR is available, but no creation), then these 2 instruments should be treated as fully fungible and the net position will be determined as the absolute value of excess of one over another. But in case that only 1 direction is open, i.e. only DR cancelation is permitted, then long position in DR vs short position in underlying equity is still supposedly fully fungible, unlike the opposite - short DR vs long underlying equity – which may bear a substantial amount of risk for the holder.
- Submission date
- Final publishing date
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- Final answer
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For the purposes of own funds requirements for market risk in the standardized approaches according to Part three, Title IV, Chapters 1, 2, 3 and 4 of Regulation (EU) No 575/2013 (CRR), no netting is allowed between depository receipts and underlying equities in accordance with Article 327(1) CRR.
- 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 updated in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR).
Disclaimer
The Q&A refers to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.