Question ID
2022_6620
Legal act
Regulation (EU) No 2019/2033 (IFR)
Topic
K-factor requirements
Article
28
Paragraph
a
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
n.a.
Type of submitter
Investment firm
Subject matter
Derivatives - Forward foreign-exchange contracts - RC under IFR
Question

Under Article 28(a) for derivative contracts, RC is determined as the CMV, and according to Article 4 (36) current market value’ or ‘CMV’ means the net market value of the portfolio of transactions or securities legs subject to netting in accordance with Article 31, where both positive and negative market values are used in computing CMV

By CMV (and than also RC) do you mean "net position" * "current exchange rate"?  

Background on the question

I am trying to calculate replacement cost of forward foreign-exchange contracts as written above, but it comes out extremely high value compared to CRR.

Example:

 

Net position

Currency

Transaction value in base currency

Market value

Currency2

current exchange rate EUR/HUF

Current Market value in base currency

Maturity

Replacement cost according to CRR

buy

1,000,000

EUR

420,000,000

404,550,000

HUF

430

430,000,000

2022.10.13

-10,000,000

My interpretation is that CMV is „Current Market value in base currency” and according to IFR CMV=RC, so replacement cost is 430,000,000 HUF, while under CRR it would be -10,000,000 HUF.

I would like to ask for clarification on whether I am misunderstanding it.

Submission date
Rejected publishing date
Rationale for rejection

 

This question has been rejected because the issue it deals with is already explained or addressed in Art. 4(36) and Art. 28(a) and of Regulation (EU) 2019/2033 (Investment Firms Regulation, or IFR). For further information on the purpose of this tool and on how to submit questions, please see 'Additional background and guidance for asking questions'.

Status
Rejected question