Question ID
2019_4571
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Market risk
Article
346; 352; 327; 357
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
Not applicable
Type of submitter
Competent authority
Subject matter
Application of a cash deposit and hedging contract on CFDs in order to reduce market risk capital requirements
Question

Can the financial contract described below be applied for reducing or netting market risk capital requirements of business with CFDs?

Background on the question

For a bank’s proprietary trading of CFDs (comprising risk classes FX, equity, commodity) with clients open positions are taken on the trading book. The resulting market risk is intended to be hedged by a contract with a counterparty (protection seller).This contract is based on ISDA rules and connected to a corresponding cash account. Potential losses within the banks CFD portfolio (net market value changes) are offset by cash of that account up to an agreed amount. There is no distinct allocation of the funds to the separate risk categories (FX, commodity, equity) causing the value changes of the banks CFD-portfolio.

 

Can the arrangement be applied in order to reduce equity risk (specific risk), FX-risk and commodity risk (net position) when calculating capital requirements for market risk standardised approach? With respect to CFDs on equities or commodities may the hedge arrangement considered an “identical” financial instrument capable of being netted against the CFDs it references?

Submission date
Rejected publishing date
Rationale for rejection

Please note that as part of adjustments to the Single Rulebook Q&A process, agreed by the EBA and the European Commission, it has been decided to reject outstanding questions submitted before 1 January 2020, when the Q&A process was updated as part of the last ESAs Review. In particular, the question that you have submitted has now regrettably been rejected and will not be addressed.

If you believe your question would still benefit from clarification, you are invited to resubmit your question, adapting it to reflect any legislative, regulatory or other relevant developments that may have occurred since the initial date of submission. The EBA will aim to address resubmitted questions as a matter of priority. When considering to resubmit, you are kindly requested to observe the updated admissibility criteria agreed in the context of the adjustment of the Q&A process, available in the Additional background and guidance for asking questions. We hope for your understanding.

For further information please refer to the press release and the updated Q&A page.

Status
Rejected question