Question ID
2020_5635
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Market risk
Article
325 ax
Paragraph
3
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
Not applicable
Type of submitter
Other
Subject matter
Application of the formula for the determination of the risk weight for a specific vega risk factor k
Question
Is it permitted to use the formula proposed in the original Basel text (MAR 21.92) to calculate the risk weight for a specific vega risk factor k, in deviation from Article 325ax Paragraph 3 CRR?
Background on the question
In a comparison of the original Basel text (MAR 21.92) and Article 325ax (3) CRR, we noticed that the formula for calculating the risk weight for a specific vega risk factor k has been extended by the multiplier "value of risk factor k". In Article 325ax (2) CRR, the risk weight is defined as a share of the current value of a certain vega risk factor k, which represents the implied volatility of the underlying asset according to Section 3. Nevertheless it remains unclear what exactly is meant by "value of risk factor k". The addition of the multiplier "value of risk factor k” to the formula as described in Article 325ax (3) CRR II means that ultimately, in the calculation of the weighted net sensitivities (WS_k) under Article 325f(6) CRR II, a share (in most cases 100%) of "value of risk factor k” is multiplied by s_k (the risk factor). Accordingly, we assume that it is correct to apply the formula according to the Basel text, the result of which is a classical risk weight.
Submission date
Status
Question under review
Answer prepared by
Answer prepared by the European Commission because it is a matter of interpretation of Union law.