Question ID
2017_3450
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Market risk
Article
340
Paragraph
-
Subparagraph
-
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
-
Type of submitter
Individual
Subject matter
Calculation of general risk capital requirement for underwriting commitment regarding bond issuance and bond issuance programs under duration-based method specified in Article 340 of the CRR.
Question

How should the capital requirement under duration-based calculation of general risk specified in Article 340 CRR be calculated where an institution is acting as an underwriter in bond issuance or bond issuance program? In particular, how to calculate the capital requirement before fixing of the coupon rate for bonds being issued and after that date?

Background on the question

According to article 345 of the CRR, when an institution is acting as an underwriter, it is obliged to calculate capital requirements related to underwriting commitment since “working day zero” which is defined as the working day on which an institution becomes unconditionally committed to accepting a known quantity of securities at an agreed price. We would like to clarify whether an institution should calculate general risk capital requirement since fixing of the coupon rate for particular issuance of bonds or since entering into contract as an underwriter.

Submission date
Final publishing date
Final answer

In the case of the underwriting of debt instruments according to Article 345 CRR, institutions generally have to calculate own funds requirements from working day 0 onwards. Working day 0 is defined as “…the working day on which the institution becomes unconditionally committed to accepting a known quantity of securities at an agreed price.…”. In the case of bond issuances, a price is considered to be agreed if the coupon (fixed-rate instruments)/ reference rate (floating-rate instruments) has been fixed. No own funds requirements for interest rate risk according to 345 CRR in connection with Art. 339 and 340 CRR have to be calculated prior to the fixing of the coupon/reference rate, because there is no market risk.  

Status
Final Q&A
Answer prepared by
Answer prepared by the EBA.
Note to Q&A

Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR) and continues to be relevant.

Disclaimer

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